Choosing the Pace of Fiscal Consolidation:
In many OECD countries debt has soared to levels threatening fiscal sustainability, necessitating its reduction over the medium to longer term. This paper uses stylised simulations in a small, calibrated macroeconomic model which features endogenous interactions between fiscal policy, growth and fin...
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| Format: | Elektronisch E-Book |
| Sprache: | English |
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Paris
OECD Publishing
2012
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| Schriftenreihe: | OECD Economics Department Working Papers
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| Online-Zugang: | UBA01 UBG01 UEI01 UER01 UPA01 UBR01 UBW01 FFW01 FNU01 EUV01 FRO01 FHR01 FHN01 TUM01 FHI01 UBM01 Volltext |
| Zusammenfassung: | In many OECD countries debt has soared to levels threatening fiscal sustainability, necessitating its reduction over the medium to longer term. This paper uses stylised simulations in a small, calibrated macroeconomic model which features endogenous interactions between fiscal policy, growth and financial markets. Simulations are done for a hypothetical economy, reflecting key characteristics of fiscally stressed OECD countries. Given the assumed objective to stabilise debt at a 60% of GDP target within 20 years, a consolidation path is chosen by maximising cumulative GDP growth and minimising cumulative squared output gaps. The simulations highlight four issues. First, lowering the debt-to-GDP ratio within a finite horizon requires big initial consolidation which can be largely unwound if debt is to be stabilised at a lower level. Second, some frontloading of the adjustment turns out to be optimal in case of an interest rate shock. Third, debt reduction with high fiscal multipliers, hysteresis effects and adverse market reactions involves protracted large negative output gaps and deflation. This stresses the importance of selecting reasonable fiscal targets consistent with market conditions. Fourth, delaying the attainment of the debt target by two years has generally little implications for initial consolidation, though under adverse conditions this would result in much higher debt and slower growth |
| Beschreibung: | 1 Online-Ressource (34 Seiten) 21 x 29.7cm |
| DOI: | 10.1787/5k92n2xg106g-en |
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| spelling | Rawdanowicz, Łukasz Verfasser aut Choosing the Pace of Fiscal Consolidation Łukasz Rawdanowicz = Choisir le rythme de l'assainissement budgétaire / Łukasz Rawdanowicz Choisir le rythme de l'assainissement budgétaire Paris OECD Publishing 2012 1 Online-Ressource (34 Seiten) 21 x 29.7cm txt rdacontent c rdamedia cr rdacarrier OECD Economics Department Working Papers In many OECD countries debt has soared to levels threatening fiscal sustainability, necessitating its reduction over the medium to longer term. This paper uses stylised simulations in a small, calibrated macroeconomic model which features endogenous interactions between fiscal policy, growth and financial markets. Simulations are done for a hypothetical economy, reflecting key characteristics of fiscally stressed OECD countries. Given the assumed objective to stabilise debt at a 60% of GDP target within 20 years, a consolidation path is chosen by maximising cumulative GDP growth and minimising cumulative squared output gaps. The simulations highlight four issues. First, lowering the debt-to-GDP ratio within a finite horizon requires big initial consolidation which can be largely unwound if debt is to be stabilised at a lower level. Second, some frontloading of the adjustment turns out to be optimal in case of an interest rate shock. Third, debt reduction with high fiscal multipliers, hysteresis effects and adverse market reactions involves protracted large negative output gaps and deflation. This stresses the importance of selecting reasonable fiscal targets consistent with market conditions. Fourth, delaying the attainment of the debt target by two years has generally little implications for initial consolidation, though under adverse conditions this would result in much higher debt and slower growth Economics https://doi.org/10.1787/5k92n2xg106g-en Verlag URL des Erstveröffentlichers Volltext |
| spellingShingle | Rawdanowicz, Łukasz Choosing the Pace of Fiscal Consolidation Economics |
| title | Choosing the Pace of Fiscal Consolidation |
| title_alt | Choisir le rythme de l'assainissement budgétaire |
| title_auth | Choosing the Pace of Fiscal Consolidation |
| title_exact_search | Choosing the Pace of Fiscal Consolidation |
| title_exact_search_txtP | Choosing the Pace of Fiscal Consolidation |
| title_full | Choosing the Pace of Fiscal Consolidation Łukasz Rawdanowicz = Choisir le rythme de l'assainissement budgétaire / Łukasz Rawdanowicz |
| title_fullStr | Choosing the Pace of Fiscal Consolidation Łukasz Rawdanowicz = Choisir le rythme de l'assainissement budgétaire / Łukasz Rawdanowicz |
| title_full_unstemmed | Choosing the Pace of Fiscal Consolidation Łukasz Rawdanowicz = Choisir le rythme de l'assainissement budgétaire / Łukasz Rawdanowicz |
| title_short | Choosing the Pace of Fiscal Consolidation |
| title_sort | choosing the pace of fiscal consolidation |
| topic | Economics |
| topic_facet | Economics |
| url | https://doi.org/10.1787/5k92n2xg106g-en |
| work_keys_str_mv | AT rawdanowiczłukasz choosingthepaceoffiscalconsolidation AT rawdanowiczłukasz choisirlerythmedelassainissementbudgetaire |