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New Zealand's Fiscal Policy Framework: Experience and Evolution

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    Abstract

    Fiscal policy in New Zealand has seen a consolidation of the Government’s position and continuing refinements to the institutional framework and Budget processes. The key institutional change has been the introduction of the Fiscal Responsibility Act 1994. The paper sets out the background to the fiscal policy framework, including fiscal history and various institutional changes in the public sector. This paper is a companion paper to Treasury Working Paper 01/24 by Angela Barnes and Steve Leith. The key elements of the fiscal policy framework are explained and compared to various “fiscal rules” used internationally. The New Zealand framework differs from that used elsewhere, especially in its use of legislated “principles of responsible fiscal management” as opposed to mandatory targets. However, the Fiscal Responsibility Act 1994 does require Governments to set short-term fiscal intentions and long-term fiscal objectives for a range of fiscal aggregates. The paper discusses the experience with the framework including a comparison of fiscal outcomes with fiscal objectives. The New Zealand experience has seen the evolution of specific operational targets (the fiscal provisions) to help improve the consistency of short-term intentions with longer-term fiscal objectives. The paper concludes with a set of challenges facing the framework, both short- and long-term.

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    File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2001/01-25/twp01-25.pdf
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    Bibliographic Info

    Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 01/25.

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    Length: 33 pages
    Date of creation: 2001
    Date of revision:
    Handle: RePEc:nzt:nztwps:01/25

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    Postal: New Zealand Treasury, PO Box 3724, Wellington, New Zealand
    Phone: +64-4-472 2733
    Fax: +64-4-473 0982
    Web page: http://www.treasury.govt.nz
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    Keywords: Fiscal policy; Fiscal Responsibility Act;

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    1. Darrel Cohen & Glenn Follette, 2000. "The automatic fiscal stabilizers: quietly doing their thing," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Apr, pages 35-67.
    2. Alan J. Auerbach & Daniel R. Feenberg, 2000. "The Significance of Federal Taxes as Automatic Stabilizers," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 14(3), pages 37-56, Summer.
    3. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 14(3), pages 21-36, Summer.
    4. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
    5. V.V. Chari & Patrick J. Kehoe & Edward C. Prescott, 1988. "Time consistency and policy," Staff Report, Federal Reserve Bank of Minneapolis 115, Federal Reserve Bank of Minneapolis.
    6. Alan J. Auerbach, 1994. "The U.S. Fiscal Problem: Where We Are, How We Got Here and Where We're Going," NBER Working Papers 4709, National Bureau of Economic Research, Inc.
    7. Thomas Dalsgaard & Alain de Serres, 1999. "Estimating Prudent Budgetary Margins for 11 EU Countries: A Simulated SVAR Model Approach," OECD Economics Department Working Papers, OECD Publishing 216, OECD Publishing.
    8. Polackova, Hana, 1997. "Population aging and financing of government liabilities in New Zealand," Policy Research Working Paper Series, The World Bank 1703, The World Bank.
    9. Julie Tam & Heather Kirkham, 2000. "Automatic Fiscal Stabilisers: Implications for New Zealand," Treasury Working Paper Series, New Zealand Treasury 01/10, New Zealand Treasury, revised 2001.
    10. Michael Reddell, 1999. "Origins and early development of the inflation target," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, Reserve Bank of New Zealand, vol. 62, September.
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    Cited by:
    1. Lees, Kirdan, 2013. "Fighting fit? Assessing New Zealand’s fiscal sustainability," NZIER Working Paper, New Zealand Institute of Economic Research 2013/5, New Zealand Institute of Economic Research.
    2. Renee Philip & John Janssen, 2002. "Indicators of Fiscal Impulse for New Zealand," Treasury Working Paper Series, New Zealand Treasury 02/30, New Zealand Treasury.
    3. Angela Barnes & Steve Leith, 2001. "Budget Management That Counts: Recent Approaches to Budget and Fiscal Management in New Zealand," Treasury Working Paper Series, New Zealand Treasury 01/24, New Zealand Treasury.

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