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2 - The Future of Economic Growth in the United States

from Part I - Overview

Published online by Cambridge University Press:  21 October 2021

By
Martin Feldstein
Edited by
John W. Diamond  and
George R. Zodrow
John W. Diamond
Affiliation:
Rice University, Houston
George R. Zodrow
Affiliation:
Rice University, Houston
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Summary

The US economy has grown more rapidly than other major industrial countries for many years. Looking ahead, though, that rate of growth seems likely to slow. This chapter looks at how far the US growth rate exceeds that of other industrial countries and the structural reasons behind it. It suggests that the official rate of economic growth measure understates the true rise in real income because: (i) the basic measure of money income ignores fringe benefits and the impact of taxes and transfers; and (ii) the official measure of real output growth fails to capture the contribution of quality change and new products. The main reason why the pace of US growth as officially measured is likely to decline in the next few years is that there is so much fiscal deficit and national debt; these will continue to grow rapidly unless there is significant legislative reform. The chapter goes on to discuss how revenue could be raised without taxing households and businesses in ways that discourage output. And, since the rising Social Security cost is a major part of the increase in deficit and debt, the chapter also discusses the reason for this cost increase and potential future reforms.

Keywords

fiscal deficitmismeasurement of GDPreal GDP growth rateSocial Security reformrevenue options
Type
Chapter
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Prospects for Economic Growth in the United States , pp. 22 - 38
Publisher: Cambridge University Press
Print publication year: 2021

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