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Fiscal Sustainability When Time is on Your Side

Listed author(s):
  • Cronin, David

    (Central Bank and Financial Services Authority of Ireland)

  • Daniel McCoy,

    (Economic and Social Research Institute)

With a favourable demographic profile, a budget balance currently in surplus and gross government debt under 60 per cent of GDP, Ireland would appear to be an economy with time on its side before any concerns about fiscal sustainability arise. In this paper, it is argued that favourable baseline prospects, nevertheless, provide no less a challenge for public finance management than dealing with poor baseline prospects. Two long-term policy options - reducing the debt and prefunding future pension liabilities - with a direct impact on the public finances are discussed. Both raise important issues for government and have implications for the financial and monetary system that need careful consideration. It is pointed out that member states face disincentives under EU fiscal rules to initiating public pensions prefunding schemes. The dynamics of fiscal sustainability in a fast-growing economy such as Ireland are also considered. It is argued that the EU fiscal rules may limit the attainment of the optimal growth path of an economy, particularly in economies where significant government investment may be warranted. With a wide range of growth rates and stage of development experiences in prospect across member states in future years, it is important that the fiscal rules be assessed as to whether they cater successfully for the diversity of investment requirements and public finance prospects in the EU.

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Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 4/RT/00.

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Length: 45 pages
Date of creation: Dec 2000
Handle: RePEc:cbi:wpaper:4/rt/00
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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.:

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  1. Fabrizio Balassone & Daniela Monacelli, 2000. "EMU fiscal rules: Is there a gap?," Temi di discussione (Economic working papers) 375, Bank of Italy, Economic Research and International Relations Area.
  2. Fabrizio Balassone & Daniele Franco, 2000. "Public investment, the Stability Pact and the ‘golden rule’," Fiscal Studies, Institute for Fiscal Studies, vol. 21(2), pages 207-229, June.
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