Adjustment for Inflation

Adjustment for Inflation

Chained-dollar estimates provide dollar values of government revenues and expenditures that are adjusted to remove the effects of inflation. These estimates show the dollar values of revenues and expenditures, which would exist if prices had remained at the same average level as in the base period. Chained-dollar amounts are computed by dividing the current dollar estimates by the chain-type price index and multiplying by one hundred (See Appendix II for definition of chain-type price index).

The deflators used for federal revenues and expenditures differ from that used for state and local revenues and expenditures. However, the same deflators are used for expenditures and revenues. While a non-defense federal government chain-type price index is used to deflate current dollar federal revenues and expenditures, a state and local chain-type price index is applied for state and local government revenues and expenditures. If expenditures are totaled across different levels of government in chained-dollars before and after federal grants, the totals do not match due to differences in deflators applied to federal grants.

The price indexes used for deflating the current dollar values are obtained from the National Income and Product Accounts Tables of the Bureau of Economic Analysis (BEA). All chained-dollar estimates in this report are provided in chained 2000 dollars. The change in the reference year from 1996 to 2000 was made for compiling chained dollar estimates, due to the change in the reference year for compiling chain-type price indexes by BEA. The change was also necessary to make the government transportation finance data comparable to other national economic indicators, such as GDP, that are reported in chained 2000 dollars.