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A welfare state funded by nature and OPEC. A guided tour on Norway's path from an exceptionally impressive to an exceptionally strained fiscal position

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Author Info
Kim Massey Heide, Erling Holmøy, Ingeborg Foldøy Solli and Birger Strøm () (Statistics Norway)
Abstract

Large petroleum revenues make Norway an enviable fiscal loner. The fiscal policy rule adopted from 2001 transforms petroleum wealth into foreign assets, and only the real return on the financial fund should be spent annually. Despite this ambitious saving of the petroleum wealth, we find it unlikely that present tax rates and welfare schemes are sustainable in a long run perspective. Rather, the results from combining detailed models of demography and government expenditures with a detailed CGE model, suggest that Norway is exceptional also with respect to strong growth in government expenditures. In our baseline scenario the payroll tax rate must be increased continuously when ageing sets in after 2020, passing twice the present level about 2045. This is required even if the pension fund reaches 1.4 times GDP, commanding an unprecedented degree of fiscal discipline.

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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 464.

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Date of creation: Jul 2006
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Handle: RePEc:ssb:dispap:464

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Related research
Keywords: Population ageing Fiscal sustainability Computable general equilibrium model Dynamic micro simulation

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Find related papers by JEL classification:
H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Klette, T.J., 1998. "Market Power, Scale Economies and Productivity: Estimates from a Panel of Establishment Data," Memorandum 15/1998, Oslo University, Department of Economics.
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  2. Thai Than Dang & Pablo Antolin & Howard Oxley, 2001. "Fiscal Implications of Ageing: Projections of Age-Related Spending," OECD Economics Department Working Papers 305, OECD Economics Department. [Downloadable!]
  3. Pablo Antolin & Wim Suyker, 2001. "How Should Norway Respond to Ageing?," OECD Economics Department Working Papers 296, OECD Economics Department. [Downloadable!]
  4. Beetsma, Roel & Bettendorf, Leon & Broer, Peter, 2003. "The budgeting and economic consequences of ageing in the Netherlands," Economic Modelling, Elsevier, vol. 20(5), pages 987-1013, September. [Downloadable!] (restricted)
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  5. Dennis Fredriksen, Kim Massey Heide, Erling Holmøy and Ingeborg Foldøy Solli, 2005. "Macroeconomic effects of proposed pension reforms in Norway," Discussion Papers 417, Research Department of Statistics Norway. [Downloadable!]
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  1. Erling Holmøy, 2007. "Fiscal sustainability: Must the problem be diminished before we can see it?," Discussion Papers 499, Research Department of Statistics Norway. [Downloadable!]
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