1887

OECD Economics Department Working Papers

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.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Israel: Monetary and Fiscal Policy

Israel’s monetary policy framework is broadly sound. Inflation targeting was introduced in the early 1990s, and low single-digit inflation was established by the end of the decade. However, fast transmission from the exchange rate to inflation means the operational challenges differ somewhat from those in many OECD countries. Also, the Bank of Israel has been intervening heavily in the foreign-exchange market, marking a departure from standard practice in inflation targeting. Past progress in fiscal consolidation has been affected by several economic shocks, including the recent downturn. The government’s strategy of lowering tax rates on corporate profits and on personal income is assessed. Also, various avenues for raising revenues on other fronts are suggested. Primary civilian spending is now relatively low in international comparison, the room for savings has narrowed, and many of the necessary future structural reforms probably require initial fiscal outlays. In budgeting, which is strongly controlled by the Ministry of Finance, there is room for various process improvements. This Working Paper relates to the 2009 OECD Economic Survey of Israel (www.oecd.org/eco/surveys/israel).

English

Keywords: budget rules, fiscal policy, Israel, inflation targeting, macroeconomic policies, taxation, public spending, public debt, OECD, monetary policy, government deficit
JEL: H63: Public Economics / National Budget, Deficit, and Debt / National Debt; Debt Management; Sovereign Debt; H20: Public Economics / Taxation, Subsidies, and Revenue / Taxation, Subsidies, and Revenue: General; H62: Public Economics / National Budget, Deficit, and Debt / National Deficit; Surplus; E58: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Central Banks and Their Policies; E: Macroeconomics and Monetary Economics; H50: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Related Policies: General; E52: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Monetary Policy
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