The name is absent

generations. Note that this measure is also forward-looking - and fundamentally different
from the traditional backward-looking debt and deficit measures.

3.3 Evaluating Unfunded Obligation Measures

Long-term Projections of Revenues, Expenditures, and Annual Deficits

Time series of annual budget cash flow projections - revenues, expenditures, deficits, and
debt - have some advantages but also have a few shortcomings: Their advantage lies in
clearly exhibiting the time profile of future revenue shortfalls given projected
discretionary and aging-related spending. Such projections are useful for showing how
quickly large financial shortfalls are likely to emerge under current policies. For example,
Figure 3.1 shows a nominal revenue time series and two alternative nominal expenditure
time series. Under the Expenditures-I alternative, moderate deficits accrue during the first
decade and then rise rapidly as a result of aging-related expenses. Under the Expenditure-
II alternative, however, the gap between revenues and expenditures is very small during
the first ten years, but it expands more rapidly thereafter compared to the Expenditure-I
alternative. The difference in the timing and accrual rates of aging-related deficits
constitutes useful and policy-relevant information.

One obvious shortcoming of such time profiles of nominal revenues, expenditures, and
deficits is that they do not place current and future dollars on a level playing field.
Although future nominal deficits appear to be larger, their real values may not be as large
if projected inflation plus real interest rates are high.

Figure 3.1 Projected Total Expenditure and Receipts (Hypothetical Data)

Expenditures - I ■ ■ 'Receipts

Second, nominal deficits and debt levels do not appear to hold significant and stable
relationships with other economic variables of interest—namely, interest rates, currency
values, inflation, productivity growth, etc. Hence, strict fiscal rules based on deficits and
debt may not be sufficient to ensure fiscal stability and long-term sustainability. Third,

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