Diminishing Quality of Fiscal Institutions: The United States and the European Union

U.S. Government debt relative to the size of the economy has risen to the point where it is likely to be interfering with real economic growth. Short-run fiscal policy has deteriorated from being counter-cyclical to pro-cyclical. The decline in the quality of U.S. fiscal institutions calls for major reform that might include a limit on the ratio of government debt to GDP. The EU also faces fundamental fiscal problems, but for a different reason.