OECD Economics Department Working Papers

ISSN :
1815-1973 (online)
DOI :
10.1787/18151973
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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.
 

Fiscal Consolidation: Part 6. What Are the Best Policy Instruments for Fiscal Consolidation? You or your institution have access to this content

Authors:
Robert Hagemann1
Author Affiliations
  • 1: OECD, France

Publication Date
10 Jan 2012
Bibliographic information
No.:
937
Pages
62
DOI
10.1787/5k9h28kd17xn-en

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OECD countries face daunting fiscal challenges following the substantial surge in debt-GDP ratios during the past four years, from already high levels in many cases. Fiscal consolidation is now the order of the day, and it takes on greater urgency against the backdrop of imminent budgetary pressures from population ageing. While strong growth would help, the bulk of consolidation will require specific structural reforms to spending and revenue programmes to stabilise and then reduce debt-GDP ratios. On the spending side, many reform options offer budgetary savings through improved efficiency, without loss of desired outcomes or adverse equity impacts. Areas examined in this paper include health care, education, infrastructure, general public services, and transfer programmes. On the revenue side, countries’ tax systems are perforated by tax expenditures that cause inefficiencies, reduce revenue, and undermine fairness. Reducing the scope and scale of tax expenditures remains one of the most promising means of boosting revenues while improving economic performance. Shifting taxation toward less inefficient tax bases also holds much promise, including raising the importance of both property taxation and environmental levies. Even without quantifying all possible measures, the cumulative cuts in spending and increases in taxation could yield 6% of GDP on average across countries in consolidation, with somewhat more on the spending side.
Keywords:
fiscal policy, fiscal consolidation, public finances
JEL Classification:
  • H61: Public Economics / National Budget, Deficit, and Debt / Budget; Budget Systems