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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
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A Simulation Model of Federal, Provincial and Territorial Government Accounts for the Analysis of Fiscal-Consolidation Strategies in Canada
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- Yvan Guillemette1
- Author Affiliations
- 1: OECD, France
- 26 Aug 2010
- Bibliographic information
This paper presents a simulation model of the main budget aggregates of federal, provincial and territorial governments in Canada. The general approach is to use a cyclical indicator (output gap), estimate the sensitivity of government revenue and expenditure to this cyclical indicator using historical data, and use projections of the cyclical indicator to simulate budgetary outcomes under various economic scenarios. Provincial/territorial annual output gaps are estimated going back to 1984. These are used to jointly estimate for all governments the historical sensitivities of the main revenue and expenditure categories to provincial/territorial economic cycles using Seemingly Unrelated Regressions. Projections of potential output by province and territory are then made to 2020 and a multitude of paths for the evolution of provincial/territorial output gaps are generated to 2020. These output gap paths serve as bases for simulating medium-term fiscal outcomes under a variety of possible economic scenarios, allowing the construction of probability densities for fiscal outcomes. The paper also contains an analysis of the cyclicality of Canadian governments’ fiscal policies between 1984 and 2007. Several jurisdictions are found to have had pro-cyclical fiscal policies over this period.
- budgets, simulation, fiscal policy, Canada, debt, consolidation, model, deficit
- JEL Classification:
- E37: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Forecasting and Simulation: Models and Applications
- E61: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Policy Objectives; Policy Designs and Consistency; Policy Coordination
- E62: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Fiscal Policy
- H68: Public Economics / National Budget, Deficit, and Debt / Forecasts of Budgets, Deficits, and Debt