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2003 OECD Economic Surveys: Iceland 2003

image of OECD Economic Surveys: Iceland 2003

This 2003 edition of OECD's periodic review of Iceland's economy examines recent economic developments, policies and prospects and includes special features on controlling public spending and structural policy developments.

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Controlling Public Spending

In Iceland, relatively little attention was paid to the size, scope and function of government until the late 1980s, when growth slowed and major fiscal imbalances emerged. Subsequent budget consolidation efforts and public-sector reforms temporarily reversed the upward trend in the public expenditure-to-GDP ratio. But in recent years the ratio has tended to edge up again. And while total public expenditure is not high by international comparison — around the OECD average and below the levels in Iceland’s Nordic neighbours — many Member countries have been successful in reducing the size of government over the 1990s. This highlights the need for enhancing spending control through further reforms. Indeed, although the expenditure management system has undergone significant changes over the past ten years or so, much remains to be done to increase budgetary discipline and improve the system’s ability to contain social-spending pressures, which will intensify as the population ages. In particular, weaknesses that need to be addressed would seem to relate to the budget process and the lack of a medium-term expenditure policy, along with insufficient performance measurement and poor accountability of public-sector managers, not least at the local-government level.

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