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A Simple Fiscal Stress Testing Model: Case Studies of Austrian, Czech and German Economies

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  • Ondra Kamenik
  • Zdenek Tuma
  • David Vavra
  • Zuzana Smidova

Abstract

This paper develops a simple model-based framework for stress testing fiscal consolidation strategies under different scenarios of future shocks. A baseline scenario assuming a gradual debt consolidation is presented and by assuming different future developments (e.g. lower potential growth) and/or model specification in terms of a fiscal rule confidence bands around the baseline are obtained. Trade-offs between costs and benefits are evaluated, in terms of cumulative output loss and primary surpluses, as well as political difficulty of fiscal strategies and risk of failed consolidation. The model is applied to Austria, Czech Republic and Germany. This working paper relates to the 2013 OECD Economic Surveys of Austria, Czech Republic and Germany. (www.oecd.org/eco/surveys) Un modèle de simulation simple de crise budgétaire - études de cas des économies autrichienne, allemande et tchèque Ce document de travail présente un modèle simple permettant de tester des stratégies de consolidation budgétaire face à différents scénarios de chocs futurs. Le scénario de référence suppose une consolidation progressive de la dette et présente différentes évolutions futures (exemple : potentiel de croissance inférieur) et /ou une spécification du modèle sous la forme de bandes de confiance des règles budgétaires autour du scénario de référence. Ce document évalue les compromis entre les coûts et les avantages en termes de perte cumulative de production et d’excédents primaires ainsi que la difficulté d’application des stratégies budgétaires d’un point de vue politique et le risque d’échec de la consolidation budgétaire. Le modèle est appliqué à l’Autriche, la République tchèque et l’Allemagne. Ce document de travail a trait aux Etudes Economiques de l’OCDE de l’Autriche, de la République tchèque et de l’Allemagne, 2013.(www.oecd.org/eco/etudes)

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 1074.

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Date of creation: 01 Jul 2013
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Handle: RePEc:oec:ecoaaa:1074-en

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Keywords: fiscal policy; structural deficit; debt consolidation; Central Europe; déficit structurel; consolidation de la dette; Europe centrale; politique budgétaire;

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  1. Reinhart, Carmen & Rogoff, Kenneth, 2010. "Growth in a Time of Debt," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7661, C.E.P.R. Discussion Papers.
  2. Frits Bos, 2007. "The Dutch fiscal framework; history, current practice and the role of the CPB," CPB Document, CPB Netherlands Bureau for Economic Policy Analysis 150, CPB Netherlands Bureau for Economic Policy Analysis.
  3. G�nter Coenen & Christopher J. Erceg & Charles Freedman & Davide Furceri & Michael Kumhof & Ren� Lalonde & Douglas Laxton & Jesper Lind� & Annabelle Mourougane & Dirk Muir & Susanna Mursula & Ca, 2012. "Effects of Fiscal Stimulus in Structural Models," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 22-68, January.
  4. Rossana Merola & Douglas Sutherland, 2012. "Fiscal Consolidation: Part 3. Long-Run Projections and Fiscal Gap Calculations," OECD Economics Department Working Papers 934, OECD Publishing.
  5. Leandro Medina & Carlos Caceres & Ana Corbacho, 2010. "Structural Breaks in Fiscal Performance," IMF Working Papers 10/248, International Monetary Fund.
  6. Thomas Herndon & Michael Ash & Robert Pollin, 2013. "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogo ff," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp322, Political Economy Research Institute, University of Massachusetts at Amherst.
  7. Eric M. Leeper, 2010. "Monetary science, fiscal alchemy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 361-434.
  8. Douglas Sutherland & Peter Hoeller & Rossana Merola, 2012. "Fiscal Consolidation: How Much, How Fast and by What Means?," OECD Economic Policy Papers 1, OECD Publishing.
  9. Robert P. Hagemann, 2010. "Improving Fiscal Performance Through Fiscal Councils," OECD Economics Department Working Papers 829, OECD Publishing.
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