OECD Economic Outlook, Volume 2010 Issue 2
The OECD Economic Outlook analyses the current economic situation and examines the economic policies required to foster a sustained recovery in member countries. This issue covers the outlook to end-2012 for both OECD countries and selected non-OECD economies. Together with a wide range of cross-country statistics, the Outlook provides a unique resource to keep abreast of world economic developments.
In addition to the themes featured regularly, this issue contains a special chapter entitled “Fiscal consolidation: Requirements, timing, instruments and institutional arrangements. It addresses the following questions: How much budget consolidation is required in individual OECD countries to stabilise the ratio of government debt to GDP and what are the requirements to bring gross debt ratios to 60% of GDP? What factors should determine the appropriate speed of consolidation? What instruments should be employed for consolidation and what kind of public spending should be cut and what kind of taxes should be raised? What fiscal rules and institutions are most likely to foster consolidation?
Fiscal Consolidation: Requirements, Timing, Instruments and Institutional Arrangements
Most OECD countries face severe fiscal consolidation requirements. At a time when the recovery is still fragile and monetary policy already extended, difficult trade-offs arise between short-term growth and consolidation. Trade-offs also exist with other policy objectives, such as equity and long-term growth. Ultimately, difficult choices will have to be made and will depend on the economic and budget situations of individual countries. However, the choice of instruments used to improve public finances may help alleviate these trade-offs, with some measures potentially strengthening growth in the longer run, while also influencing the consequences of consolidation on equity and its political acceptance.