OECD Economic Policy Papers

ISSN :
2226-583X (online)
DOI :
10.1787/2226583x
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The OECD Economic Policy Papers series is designed to make available selected studies on structural and macro-economic policy issues of current interest. The Papers are produced in the context of the work carried out on the two regular OECD titles, OECD Economic Outlook and Going for Growth.
 

Fiscal Consolidation

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Author(s):
Douglas Sutherland1, Peter Hoeller1, Rossana Merola1
Author Affiliations
  • 1: OECD, France

Publication Date
12 Apr 2012
Bibliographic information
No.:
1
Pages
30
DOI
10.1787/5k9bj10bz60t-en

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The economic and financial crisis was the catalyst for a fiscal crisis that engulfs many OECD countries. Consolidating public finances in order to address the consequences of the crisis, underlying weaknesses and also future spending pressures creates important challenges. Fiscal consolidation requires choices to be made about how much consolidation is needed, how fast it should be implemented and which instruments should be used. Estimates of fiscal gaps suggest that substantial and sustained fiscal tightening will be needed in nearly all countries to bring debt down to prudent levels. However, given a weak global economy, implementing a large fiscal tightening could be particularly costly. Structuring consolidation packages to use instruments with low multipliers initially and enhancing the institutional framework for fiscal policy to lend greater credibility to the commitment to consolidate over time may help minimise the trade-offs with growth in the short run. In most countries there is scope to target spending programmes more effectively and eliminate distortions in taxation. Such measures, buttressed by structural reforms, such as to unsustainable pension systems, can underpin fiscal sustainability, while minimising the costs to long-run growth.
Also available in: French
Keywords:
fiscal gaps, fiscal consolidation
JEL Classification:
  • H62: Public Economics / National Budget, Deficit, and Debt / Deficit; Surplus
  • H63: Public Economics / National Budget, Deficit, and Debt / Debt; Debt Management; Sovereign Debt
  • H68: Public Economics / National Budget, Deficit, and Debt / Forecasts of Budgets, Deficits, and Debt