How far into the future should governments budget? Economic theory has a clear and rigid answer. But it's not one economists like to give, because it's not one people easily comprehend and it's not one that politicians, whose attention most economists covet, like to hear. The answer is that governments need to budget out to infinity, says Laurence Kotlikoff, a senior fellow with the National Center for Policy Analysis and economist at Boston University.
Infinity is a very long time. But economic theory also tells us that in budgeting out to infinity, we should place less weight on distant government expenditures and tax receipts. Specifically, we should include in our budgeting not actual future expenditures and taxes, but their present values.
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