2003 OECD Economic Surveys: Luxembourg 2003

image of OECD Economic Surveys: Luxembourg 2003

This 2003 edition of OECD's periodic review of Luxembourg's economy examines recent economic developments, prospects and policies and includes special features on policies to strengthen growth in national income and on migration.

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Fiscal Policy

The budget surplus has fallen markedly during the current economic downturn, from 6 per cent of GDP in 2000 to 2½ per cent of GDP in 2002. This deterioration, which is mainly structural, is entirely attributable to continued rapid growth in government expenditure, the public expenditure ratio rising by 6 percentage points of GDP over 2000-02 to 45 per cent, just below the record registered in 1993 (Ministry of Finance, 2003a). Most of this increase is accounted for by high growth in social security and investment expenditures and can be attributed to economic growth turning out to be much lower than forecast when expenditure plans were finalised. Government revenues have increased as a share of GDP, despite tax cuts in 2001 and 2002, owing to a surge in back taxes from corporations and other lags in the effect of the downturn on tax revenues. Economic growth in 2003 is again likely to be much lower than when expenditure plans were finalised, resulting, according to the authorities, in another large deterioration in the budget balance (to a projected surplus of 0.2 per cent of GDP).

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