How Much Red Ink?: Comparing economic and accounting approaches to measuring government deficit and debt

James L. Chan & Yunxiao Xu

Published: March 2012

Under the influence of economics, fiscal policy and government budgets focus on projected cash deficits and bonds issued to finance them. While these numbers are certainly necessary, they overlook the delayed costs of policy decisions and actions. Therefore they should be complemented by actual cash deficit, actual accrual deficit and total liability numbers. Data from the consolidated financial statements of the U.S. Government during the past decade are used to show how much a difference the lapse of time and the accrual method made to the common measures of perceived fiscal realities. It is argued that accrual accounting numbers unveil the severity and important aspects of the fiscal problems facing the United States.