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Achieving Fiscal Flexibility and Safeguarding Sustainability: The Case of Slovakia

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  • Isabell Koske

Abstract

Euro area entry calls for more fiscal flexibility to absorb cyclical shocks that cannot be dealt with by the common monetary policy. At the same time fiscal consolidation must not be put at risk, especially given rising ageing related costs. The current fiscal framework could be improved by introducing multi-year expenditure ceilings and by removing pro-cyclical elements in fiscal rules. An adjustment account that serves to register breaches of fiscal rules and eliminates them over time could help in coping with projection errors. To ensure long-term sustainability of public finances it is essential not to dilute the substantial improvements in the long-term balance of the definedbenefit pillar associated with past pension reforms. The government should consider making participation in the defined contribution pillar mandatory for new labour market entrants or, at the very least, make it the default option. For current workers the pillars should remain closed. Moreover, further parametric changes such as increasing the retirement age in line with life expectancy gains and reducing unsustainable elements in the pension formula would improve the balance of the defined benefit pillar. Introduire plus de flexibilité budgétaire et préserver la viabilité des finances publiques - le cas de la Slovaquie L’entrée dans la zone euro exige plus de flexibilité budgétaire pour absorber les chocs cycliques auxquels ne peut remédier la politique monétaire commune. Mais, dans le même temps, il ne faut pas compromettre l’assainissement budgétaire, surtout avec l’augmentation des dépenses liée au vieillissement. On pourrait améliorer le cadre budgétaire actuel en introduisant des plafonds pluriannuels de dépenses et en mettant fin aux éléments procycliques des règles de politique budgétaire. Un compte d’ajustement enregistrant les écarts par rapport aux règles de politique budgétaire et les éliminant à terme pourrait être utile pour corriger les erreurs de prévision. Pour assurer la viabilité à long terme des finances publiques, il est indispensable de ne pas remettre en cause la nette amélioration à long terme de l’équilibre du régime de retraite à prestations définies, rendue possible par les réformes antérieures. Le gouvernement devrait envisager une participation obligatoire des nouveaux entrants sur le marché du travail au régime à cotisations définies ou, au moins, faire en sorte que ce régime soit l’option par défaut. Il ne faudrait pas que les travailleurs actuels puissent changer de régime. De plus, de nouveaux ajustements paramétriques - notamment le relèvement de l’âge de la retraite en fonction de l’allongement de l’espérance de vie et la correction d’un certain nombre d’éléments non viables de la formule de calcul des retraites - amélioreraient l’équilibre du régime à prestations définies.

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File URL: http://dx.doi.org/10.1787/226231818862
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 681.

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Date of creation: 06 Mar 2009
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Handle: RePEc:oec:ecoaaa:681-en

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Keywords: Slovak Republic; pension system; fiscal sustainability; fiscal rules; République slovaque; cadre budgétaire; viabilité budgétaire; système de retraite;

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Cited by:
  1. Fidrmuc, Jarko & Wörgötter, Andreas, 2014. "Euro Membership, Foreign Banks And Credit Developments During The Financial Crisis In Slovakia: A Case Study," Acta Oeconomica et Informatica, Faculty of Economics and Management, Slovak Agricultural University in Nitra (FEM SPU) & Association of Agricultural Economists in Slovakia (APES), vol. 17(1).
  2. Jarko Fidrmuc & Caroline Klein & Robert W.R. Price & Andreas Wörgötter, 2013. "Slovakia: A Catching Up Euro Area Member In and Out of the Crisis," OECD Economics Department Working Papers 1019, OECD Publishing.

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