Fiscal reform and fiscal sustainability: Evidence from Australia and Sweden

Abstract

This paper examines how the adoption of a fiscal rule affects the sustainability of fiscal policy in two OECD countries; Australia and Sweden. While recent fiscal reforms undertaken in both these countries are useful for ensuring the sustainability of government budgets, there are a few differences. In Australia, we show that government revenues are not necessarily growing at a faster rate than government expenditures, at least from the viewpoint of a statistical long-run relationship. In contrast, in Sweden, we show the reform is more beneficial for the attainment of a budget surplus.

Subdued Potential Growth: Sources and Remedies

“…Sixty percent of fiscal reform episodes in 112 countriessuch as switching from labor taxation to consumption taxation and shifting spending towards health, education, and infrastructure-were followed by growth accelerations of more than 1 percentage point (IMF 2016b). Over the longer-term, fiscal reforms such as the establishment of fiscal rules have also proven growth enhancing in EU countries (Miyazaki 2014;Castro 2011;Afonso and Jalles 2012).…”

The Sustainability of Japan’s Government Debt: A Review

“…Bohn [6] introduces the "model-based sustainability approach" to estimate the reaction function developed by him in 1998. 5 Bohn [11] estimates the equation below.…”

“…They find that the Japanese government debt is sustainable using Perron's [14] unit-root test with a structural break on the residual of the logarithm of govern- Why is this change in results? One relevant indicator that possibly explains this is Japan's social security expenditure increase due to a rapidly aging popula- 5 In terms of terminology, "reaction function approach" may be rather appropriate. However, we follow the term using Bohn [6] to make a comparison with the ad hoc approach.…”

Can fiscal austerity be expansionary in present-day Europe? The lessons from Sweden

“…European Commission 2010, pp. 112-114;Franco and Zotteri 2010;Miyazaki 2011). Among the EU countries, Denmark, Finland and Belgium had a larger public saving surplus (on average) than Sweden in 1998-2007.…”