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Fiscal Consolidation in Israel: A Global Fiscal Model Perspective

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Author Info

  • Selim Elekdag
  • Natan Epstein
  • Marialuz Moreno-Badía

Abstract

Fiscal consolidation has become a central policy prescription for many highly indebted emerging market countries (EMCs). Although prudent fiscal policies tend to reduce vulnerabilities, their implementation is usually postponed. This paper is one of the first attempts in the literature to quantify the costs of delaying fiscal consolidation in an EMC. Using the International Monetary Fund's Global Fiscal Model, we find that early consolidation through expenditure cuts results in a substantial increase in Israel's long-term output growth over delayed fiscal adjustment. Moreover, the more flexible are the factor markets, the larger is this output gain.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 43 (2007)
Issue (Month): 6 (November)
Pages: 67-86

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Handle: RePEc:mes:emfitr:v:43:y:2007:i:6:p:67-86

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

Related research

Keywords: distortionary taxes; fiscal consolidation; government debt;

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