Saving, investment, capital stock and current account projections in long-term scenarios

Abstract

OECD Working Papers should not be reported as representing the official views of the OECD or of its member countries. The opinions expressed and arguments employed are those of the author(s).

The Long View

“…Such a scenario can be interpreted as either a direct increase in public expenditure on R&D, or as a set of other policy changes that, through incentive effects, raises private R&D spending by the same amount. 16 The R&D spending boost in this scenario, of 1¾ percentage points of GDP in the median country, raises annual trend real GDP per capita growth in the OECD area by a tenth of a percentage point by 2030, and two-tenths by 2045, mostly via higher trend labour efficiency growth, but also through higher capital intensity, physical investment being spurred on by higher productivity growth (Figure 17, Panel A). The peak growth effect occurs around 2050 given the lags involved in adding significantly to the existing R&D stock and the slow convergence speed to equilibrium labour efficiency.…”

“…While the case is less obvious now than in the depths of the crisis, when a fiscal boost would have sped up the closure of output gaps and benefitted the hard-hit construction sectors of many countries, it remains a strong one. Governments' access to very low financing rates, combined with large infrastructure needs in many countries after years of underinvestment, suggest the existence of many positive net return projects that would boost potential output and raise future living standards (Global Infrastructure Hub, 2017 [16] ).…”

The long game: Fiscal outlooks to 2060 underline need for structural reform

“…Some of these scenarios are reprised in section 5 to examine the sensitivity of the baseline fiscal projection. 13.…”

“…The possible impact of the COVID-19 pandemic on long-run health expenditure is not taken into account in the projections as the latest available information on health spending per capita still pre-dates the pandemic. See section 4 in Guillemette (2019 [13]) for additional methodological details.…”

“…Differences across countries in rg differentials also gradually disappear and what remains is mainly due to country-specific fiscal risk premia in long-term interest rates. 11 11 See section 5 of Guillemette (2019 [13]) for methodological details on long-term interest rate projections. Because the neutral short-term rate for the euro area is set with respect to euro area potential growth, rg differentials become slightly positive in euro area countries where potential growth eventually declines below the euro area average.…”