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Fiscal Consolidation and the Implications of Social Spending for Long-Term Fiscal Sustainability

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  • Rossana Merola
  • Douglas Sutherland

Abstract

This paper sheds light on the scale of fiscal consolidation that will be needed toensure long-term sustainability and on the potential benefits of institutional reforms inmitigating budget pressures of social spending. Based on alternative scenarios, resultssuggest that, in several OECD countries, the fiscal challenges are exacerbated in the longterm by spending pressures related to health and pensions. This paper shows howinstitutional reforms may support long-term fiscal sustainability and, at the same time,reduce adverse short-term effects of fiscal consolidation on growth.

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Article provided by Università di Perugia in its journal Review of Economics and Institutions.

Volume (Year): 4 (2013)
Issue (Month): 3 ()
Pages:

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Handle: RePEc:pia:review:v:4:y:2013:i:3:n:2
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Keywords: fiscal consolidation; long-term public finance sustainability; public social expenditure; long-term projections; ageing populations;

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Find related papers by JEL classification:
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
  • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
  • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
  • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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  1. Hans Fehr & Sabine Jokisch & Laurence Kotlikoff, 2004. "Fertility, Mortality, and the Developed World’s Demographic Transition," CESifo Working Paper Series 1326, CESifo Group Munich.
  2. Claeys, Peter, 2007. "Sustainability of EU Fiscal Policies: a Panel Test," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 22, pages 112-127.
  3. Balassone, Fabrizio & Cunha, Jorge & Langenus, Geert & Manzke, Bernhard & Pavot, Jeanne & Prammer, Doris & Tommasino, Pietro, 2009. "Fiscal sustainability and policy implications for the euro area," Working Paper Series 0994, European Central Bank.
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  6. Christophe Rault & Antonio Alfonso, 2007. "What do we really know about fiscal sustainability in the EU? A panel data diagnostic," William Davidson Institute Working Papers Series wp893, William Davidson Institute at the University of Michigan.
  7. Richard Blundell & Costas Meghir & Sarah Smith, 2002. "Pension Incentives and the Pattern of Early Retirement," Economic Journal, Royal Economic Society, vol. 112(478), pages C153-C170, March.
  8. Andreas Werblow & Stefan Felder & Peter Zweifel, 2007. "Population ageing and health care expenditure: a school of 'red herrings'?," Health Economics, John Wiley & Sons, Ltd., vol. 16(10), pages 1109-1126.
  9. Alberto Alesina & Roberto Perotti, 1996. "Fiscal Adjustments in OECD Countries; Composition and Macroeconomic Effects," IMF Working Papers 96/70, International Monetary Fund.
  10. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 75-122 National Bureau of Economic Research, Inc.
  11. Friedrich Breyer & Stefan Felder, 2004. "Life Expectancy and Health Care Expenditures: A New Calculation for Germany Using the Costs of Dying," Discussion Papers of DIW Berlin 452, DIW Berlin, German Institute for Economic Research.
  12. Robert E. Hall & Charles I. Jones, 2005. "The value of life and the rise in health spending," Proceedings, Federal Reserve Bank of San Francisco.
  13. Rossana Merola & Douglas Sutherland, 2012. "Fiscal Consolidation: Part 3. Long-Run Projections and Fiscal Gap Calculations," OECD Economics Department Working Papers 934, OECD Publishing.
  14. Joaquim Oliveira Martins & Christine de la Maisonneuve, 2006. "The drivers of public expenditure on health and long-term care: An integrated approach," OECD Economic Studies, OECD Publishing, vol. 2006(2), pages 115-154.
  15. Åsa Johansson & Yvan Guillemette & Fabrice Murtin & David Turner & Giuseppe Nicoletti & Christine de la Maisonneuve & Philip Bagnoli & Guillaume Bousquet & Francesca Spinelli, 2013. "Long-Term Growth Scenarios," OECD Economics Department Working Papers 1000, OECD Publishing.
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  17. repec:nsr:niesrd:333 is not listed on IDEAS
  18. Brigitte Dormont & Michel Grignon & Hélène Huber, 2006. "Health expenditure growth : reassessing the threat of ageing," Post-Print halshs-00181605, HAL.
  19. Ardagna, Silvia, 2004. "Fiscal Stabilizations: When Do They Work and Why," Scholarly Articles 2580047, Harvard University Department of Economics.
  20. Isabelle Joumard & Christophe André & Chantal Nicq, 2010. "Health Care Systems: Efficiency and Institutions," OECD Economics Department Working Papers 769, OECD Publishing.
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