chapter  II
3 Pages

Indexing the Federal Budget

The issue posed for fiscal policy makers by an upward bias in the CPI has been stated with admirable clarity by the Congressional Budget Office (1994):

The budgetary effect of any overestimate of changes in the cost of living highlights the possibility of a shift in the distribution of wealth. If the CPI has an upward bias, some federal programs would overcompensate for the effect of price changes on living standards, and wealth would be trans­ ferred from younger and future generations to current recipients of in­ dexed federal programs-an effect that legislators may not have intended.3