Improving fiscal management

This chapter discusses budgetary policies against the backdrop of Iceland’s longerterm fiscal position. With government finances in broad balance since budget consolidation in the mid-1990s, public debt has fallen significantly relative to GDP and is low by international comparison. At the same time, however, both the public expenditure and public revenue ratio to GDP have risen considerably. This reflects in part public spending overruns relative to budgeted values. Better expenditure control would both create room for tax cuts and allow fiscal policy to play a greater role in aggregate demand management. A problem in this respect is the lack of co-ordination and co-operation between the local and central governments.