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 |
| Veröffentlicht: |
Paris
OECD Publishing
2012
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| Schriftenreihe: | OECD Economics Department Working Papers
no.992 |
| Schlagworte: | |
| Online-Zugang: | 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 p.) 21 x 29.7cm. |
| DOI: | 10.1787/5k92n2xg106g-en |
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| spelling | Rawdanowicz, Łukasz VerfasserIn 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 p.) 21 x 29.7cm. Text txt rdacontent Computermedien c rdamedia Online-Ressource cr rdacarrier OECD Economics Department Working Papers no.992 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 FWS01 ZDB-13-SOC FWS_PDA_SOC https://doi.org/10.1787/5k92n2xg106g-en 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_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 |
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