IDEAS home Printed from
   My bibliography  Save this paper

Sustainability of public finances in Finland and the four largest Euro-area Economies


  • Kinnunen, Helvi
  • Kuoppamäki, Pasi


The paper analyses the sustainability of fiscal policy in the four largest countries of the EMU area and Finland with the aim of assessing whether current fiscal policies are compatible with the Stability and Growth Pact in the medium term.The sensitivity of the deficit and debt ratios to changes in the real interest rate and economic growth is also assessed.Moreover, since population ageing will cause an extra burden on public finances, the fiscal pressure of rising pension costs in the longer term is also investigated. The baseline calculations for the medium term suggest that fiscal policy is sustainable in all countries except perhaps France. However, highly indebted countries such as Italy are clearly more sensitive to changes in interest rates.The results indicate that there is little or no room for active fiscal policy.The room for manoeuvre is even more limited if one takes into account that tax rates most likely need to be lowered in many countries, especially in Finland and Italy, due to tax harmonization and tax competition. Moreover, population ageing will impose pressures on public finances in the long run.Only Finland and Italy seem to be in a position to cope with increasing pension expenditures over the long run.

Suggested Citation

  • Kinnunen, Helvi & Kuoppamäki, Pasi, 1998. "Sustainability of public finances in Finland and the four largest Euro-area Economies," Research Discussion Papers 25/1998, Bank of Finland.
  • Handle: RePEc:bof:bofrdp:1998_025

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Michael Artis & Massimiliano Marcellino, "undated". "Fiscal Solvency and Fiscal Forecasting in Europe," Working Papers 142, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    2. Kinnunen, Helvi & Tujula, Mika, 1997. "Finanssipolitiikan liikkumavara, eläkkeiden rahoitus ja EMU," Research Discussion Papers 9/1997, Bank of Finland.
    3. Peter Brandner & Leopold Diebalek & Helene Schuberth, 1998. "Structural Budget Deficits and Sustainability of Fiscal Positions in the European Union," Working Papers 26, Oesterreichische Nationalbank (Austrian Central Bank).
    4. Michael Artis & Bernhard Winkler, 1998. "The Stability Pact: Safeguarding the Credibility of the European Central Bank," National Institute Economic Review, National Institute of Economic and Social Research, vol. 163(1), pages 87-98, January.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Ignazio Visco & Barry Eichengreen & Gilles Mourre & Declan Costello & Giuseppe Carone & Nuria Diez Guardia & Bartosz Przywara & Aino Salomäki & Vincenzo Galasso & Mark Weth & Sebastian Schich & Etienn, 2007. "Money, Finance and Demography: The Consequences of Ageing," SUERF Colloquium Volumes, SUERF - The European Money and Finance Forum, number 1 edited by Morten Balling & Ernest Gnan & Frank Lierman.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bof:bofrdp:1998_025. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Minna Nyman). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.