OECD Journal: Economic Studies

Frequency
Annual
ISSN: 
1995-2856 (online)
ISSN: 
1995-2848 (print)
http://dx.doi.org/10.1787/19952856
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OECD Journal: Economic Studies publishes articles in the area of economic policy analysis, applied economics and statistical analysis, generally with an international or cross-country dimension. It draws significantly on economic papers produced by the OECD Economics Department, other parts of the OECD Secretariat and the Organisation’s intergovernmental committees.

Article
 

Reconciling fiscal consolidation with growth and equity You do not have access to this content

English
 
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    http://oecd.metastore.ingenta.com/content/1313011ec008.pdf
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Author(s):
Boris Cournède1, Antoine Goujard, Álvaro Pina
Author Affiliations
  • 1: OECD, France

05 Feb 2014
Pages:
83
Bibliographic information
No.:
1,
Volume:
2013,
Issue:
1
Pages:
7–89
http://dx.doi.org/10.1787/eco_studies-2013-5jzb44vzbkhd

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Despite sustained efforts made in recent years to rein in budget deficits, a majority of OECD countries still face substantial public finance consolidation needs. While essential to avoid the disruption and large costs ultimately associated with unsustainable public finances, fiscal consolidation complicates the task of achieving other policy goals. In most cases, it weighs on demand in the short term. And, if too little attention is paid to the mix of instruments used to achieve consolidation, it can undermine long-term growth, exacerbate income inequality and slow the process of global rebalancing. It is therefore important for governments to adopt consolidation strategies that minimise these adverse side-effects. The analysis proposes consolidation strategies that take into account other policy goals as well as country-specific circumstances and preferences. To do so, increases in particular taxes and cuts in specific spending areas are assessed for their effects on short- and long-term growth, income distribution and external accounts. The results of detailed illustrative simulations indicate that a significant number of OECD countries may have to raise harmful taxes or cut valuable spending areas to deliver sufficient consolidation, underscoring the need for structural reforms to counteract these side-effects. The results are robust to an extensive range of sensitivity checks.

 
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