Abstract:The OECD Economic Policy Paper Series is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member countries. This paper is a revised version of the main document on fiscal consolidation (Part 1, see below) that was discussed at the OECD Economic Policy Committee and Working Party 1 meetings. The authors would like to thank the participants. More… Show more
“…Economic policy-makers utilize these findings in the debate how much consolidation is needed, how fast and with which instruments. In a series of OECD Economic Department working papers about these questions (Sutherland, Hoeller, and Merola 2012), it was once again empirically confirmed that spending-driven fiscal adjustments are more likely to reduce deficit and stabilize debt than tax-driven ones (Molnar 2012;Blöchliger, Song, and Sutherland 2012). The OECD (2012) cross-country analysis of fiscal consolidations also stipulated the preference for spending cuts over tax rises.…”
Section: Composition Of Fiscal Consolidation: Spending Cuts Versus Tamentioning
The politics of fiscal consolidation in thirteen European countries are statistically analysed. Based on the political economy literature, political factors are identified that explain for the consolidation. Variables are selected representing strength of government and political orientation, and fiscal consolidation is distinguished into spending cuts and cuts in administration. The statistical analysis of political explanations for cutbacks hardly yields significant results and nor does the analysis of fiscal and economic effects of consolidation. The analysis of political effects of consolidation does lead to significant results. Some earlier political economic findings are not supported for our sample of thirteen European countries.
“…Economic policy-makers utilize these findings in the debate how much consolidation is needed, how fast and with which instruments. In a series of OECD Economic Department working papers about these questions (Sutherland, Hoeller, and Merola 2012), it was once again empirically confirmed that spending-driven fiscal adjustments are more likely to reduce deficit and stabilize debt than tax-driven ones (Molnar 2012;Blöchliger, Song, and Sutherland 2012). The OECD (2012) cross-country analysis of fiscal consolidations also stipulated the preference for spending cuts over tax rises.…”
Section: Composition Of Fiscal Consolidation: Spending Cuts Versus Tamentioning
The politics of fiscal consolidation in thirteen European countries are statistically analysed. Based on the political economy literature, political factors are identified that explain for the consolidation. Variables are selected representing strength of government and political orientation, and fiscal consolidation is distinguished into spending cuts and cuts in administration. The statistical analysis of political explanations for cutbacks hardly yields significant results and nor does the analysis of fiscal and economic effects of consolidation. The analysis of political effects of consolidation does lead to significant results. Some earlier political economic findings are not supported for our sample of thirteen European countries.
“…The importance of sustainable long-term debt targets has been emphasized by a number of studies and policy institutions (see e.g. Sutherland et al, 2012, for an OECD analysis of medium-term fiscal sustainability). Rogoff and Reinhardt (2010) emphasized the adverse growth effects of high debt, estimating the threshold level of debt negatively affecting growth at 90% of GDP.…”
Section: Systematic Fiscal Rules and Institutionsmentioning
confidence: 99%
“…However, a number of studies have found out that the composition of fiscal revenues and expenditures is an important factor of the success and durability of fiscal consolidations (e.g. Sutherland et al, 2012, Barrel et al, 2012. We abstract from these effects.…”
Section: Advantages and Disadvantages Of Our Modelling Strategymentioning
JT03342559Complete document available on OLIS in its original format This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. (2013) This paper develops a simple model-based framework for stress testing fiscal consolidation strategies under different scenarios of future shocks. A baseline scenario assuming a gradual debt consolidation is presented and by assuming different future developments (e.g. lower potential growth) and/or model specification in terms of a fiscal rule confidence bands around the baseline are obtained. Trade-offs between costs and benefits are evaluated, in terms of cumulative output loss and primary surpluses, as well as political difficulty of fiscal strategies and risk of failed consolidation. The model is applied
ECO/WKP
“…Until 2060, the share of ageing-related spending is estimated to increase by 7.5 percentage points of GDP if current levels of pension generosity and health provision are maintained (European Commission, 2012). According to recent OECD estimates, stabilizing debt at 50% of GDP in 2050 would require improving the underlying primary balance by 3% to 5% of GDP, on top of the current consolidation efforts, from 2012 onwards depending on assumptions on the future increases in pension and healthcare spending (Sutherland et al, 2012). While future ageing liabilities can be seen as a budgetary imbalance, it can also be viewed as a measure of reform needed to reduce the growth of ageing related spending.…”
Section: Population Ageing Increases Contingent Liabilitiesmentioning
JT03333723
Complete document available on OLIS in its original format This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
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