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Fiscal Rules and Targets and Public Expenditure Management - Enthusiasm in the 1990s and its Aftermath

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  • Hideaki Tanaka

    (Australia Japan Research Centre)

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    Abstract

    The 1990s saw an era of fiscal consolidation in industrialised countries, which struggled with fiscal deficits throughout the 1970s and 1980s. Reforms in public expenditure management, typically the introduction of fiscal rules and targets, together with favourable economic growth contributed to a significant improvement in fiscal positions. However, fiscal deficits have been increasing again since the turn of the 21st century in many OECD countries. Interestingly, some countries have been able to maintain fiscal discipline since the achievement of fiscal balance in the latter half of the 1990s. What has caused this difference? This paper derives important lessons for reform in public expenditure management from the experiences of major OECD countries, including Australia, France, Germany, Japan, the Netherlands, New Zealand, Sweden, the UK and the USA. Essentially, success in maintaining fiscal discipline lies in maintaining a firm political commitment, and strengthening expenditure management that underpins any such commitment, specifically a medium-term fiscal plan in line with fiscal rules and targets in a centralised and transparent manner. Public expenditure management reform is a cornerstone of the restructuring of public sector services, especially in welfare programs aimed at overcoming problems arising from an aging population.

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    File URL: http://saber.eaber.org/node/22705
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    Bibliographic Info

    Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 22705.

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    Date of creation: Jan 2005
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    Handle: RePEc:eab:financ:22705

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    Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
    Web page: http://www.eaber.org
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    Related research

    Keywords: fiscal deficit; public expenditure management; OECD; Australia; France; Germany; Japan; Netherlands; New Zealand; Sweden; UK; USA; welfare programs; aging population;

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    1. Uctum, Merih & Wickens, Michael, 2000. " Debt and Deficit Ceilings, and Sustainability of Fiscal Policies: An Intertemporal Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(2), pages 197-222, May.
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    3. Balassone, Fabrizio & Giordano, Raffaela, 2001. " Budget Deficits and Coalition Governments," Public Choice, Springer, vol. 106(3-4), pages 327-49, March.
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    6. Gian-Maria Milesi-Ferretti, 2000. "Good, Bad or Ugly? On The Effects of Fiscal Rules with Creative Accounting," IMF Working Papers 00/172, International Monetary Fund.
    7. Marco Buti & Paul van den Noord, 2003. "Discretionary Fiscal Policy and Elections: The Experience of the Early Years of EMU," OECD Economics Department Working Papers 351, OECD Publishing.
    8. Edward Balls, 1997. "Open macroeconomics in an open economy," LSE Research Online Documents on Economics 28748, London School of Economics and Political Science, LSE Library.
    9. Gabriele Giudice & Alessandro Turrini & Jan in 't Veld, 2003. "Can fiscal consolidations be expansionary in the EU? Ex-post evidence and ex-ante analysis," European Economy - Economic Papers 195, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
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