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2004 OECD Economic Outlook, Volume 2004 Issue 2

image of OECD Economic Outlook, Volume 2004 Issue 2

OECD's December 2004 assessment of economic developments and prospects.  In addition to the regular economic assessments and statistical information, this issue includes articles examining oil price developments and savings behaviour and the effectiveness of fiscal policy.

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Saving Behaviour and the Effectiveness of Fiscal Policy

Fiscal policy has been used as an antidote to weak activity during the most recent downturn and fiscal consolidation has been delayed in some countries because of its perceived costs in terms of lower activity. However, the impact of fiscal policy on aggregate demand depends on the responses of private saving to changes in fiscal stance. In certain circumstances budget deficit shifts can be offset by simultaneous compensating changes in private saving. This chapter examines the possible extent of such offsets, focusing on the case where co-movements in private and public saving may be related to uncertainties about how long a budget deficit can be sustained and the consequent need to provide against future tax “surprises”.

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