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1 [1] (February 14, 2017)

handle is hein.crs/crsmthmargn0001 and id is 1 raw text is: CRS INSIGHT Fiscal Space and the Federal Budget February 14, 2017 (IN10624) Related Authors * rant A Driessn Marc Lab onte I Grant A. Driessen, Analyst in Public Finance (gdriessen crs bc gov, 7-7757) Marc Labonte, Specialist in Macroeconomic Policy (mlabQnJe(TcrsJQc.gov, 7-0640) Policymakers are interested in the concept of fiscal space, or the amount of room available for additional government borrowing, as they discuss plans for the federal budget. Though budget deficits have declined in recent years, debt held by the public was estimated to equal 77.0% of gross domestic product (GDP) at the end of FY2016, which would represent the highest ratio since FY1950. This Insight examines contributing factors to fiscal space availability and discusses recent developments. Assuming a continuation of low interest rates, it is unlikely that fiscal space will constrain short-term federal operations, but projections indicate that fiscal space may be a binding constraint in the medium- and long-term outlook. Recent Trends The legacy of persistent budget deficits in the last several decades has been a steady accumulation of publicly held debt relative to GDP. Figure 1 shows the historical movement in publicly held federal debt from FY1946 to FY2016. Debt held by the public declined after World War II but has since increased considerably, rising from 23.1% of GDP in FY1974 to 77.0% of GDP in FY2016. This trend included a significant rise in debt held by the public during the 2007- 2009 Great Recession and subsequent recovery, from 35.2% of GDP in FY2007 to 70.4% of GDP in FY2012. The rate of increase slowed in the past few years due to further economic improvements, expiration of recovery programs and certain tax cuts, and restrictions on discretionary spending. Figure 1. Publicly Held Federal Debt, FY1946-FY2016