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Fiscal Sustainability When Time is on Your Side

Author

Listed:
  • Cronin, David

    (Central Bank and Financial Services Authority of Ireland)

  • Daniel McCoy,

    (Economic and Social Research Institute)

Abstract

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.

Suggested Citation

  • Cronin, David & Daniel McCoy,, 2000. "Fiscal Sustainability When Time is on Your Side," Research Technical Papers 4/RT/00, Central Bank of Ireland.
  • Handle: RePEc:cbi:wpaper:4/rt/00
    as

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    File URL: https://centralbank.ie/docs/default-source/publications/research-technical-papers/4rt00---fiscal-sustainability-when-time-is-on-your-side-(cronin-and-mccoy).pdf?sfvrsn=4
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    References listed on IDEAS

    as
    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, pages 207-229.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Patrick Honohan & Brendan Walsh, 2002. "Catching Up with the Leaders: The Irish Hare," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 1-78.
    2. Duffy, David & Hore, Jonathan & MacCoille, Conall & McCoy, Daniel, 2001. "Budget 2002: Macroeconomic Context and Fiscal Stance," Papers BP2002/1, Economic and Social Research Institute (ESRI).
    3. repec:esr:chaptr:jacb200114 is not listed on IDEAS
    4. Honohan, Patrick, 2001. "European and International Constraints on Irish Fiscal Policy," Papers BP2002/2, Economic and Social Research Institute (ESRI).
    5. Kearney, Ide & McCoy, Daniel & Duffy, David & McMahon, Michael & Smyth, Diarmaid, 2000. "Assessing the Stance of Irish Fiscal Policy," Papers BP2001/1, Economic and Social Research Institute (ESRI).
    6. repec:esr:chaptr:jacb200010 is not listed on IDEAS
    7. repec:esr:chaptr:jacb200113 is not listed on IDEAS
    8. Holmøy, Erling & Strøm, Birger, 2013. "Computable General Equilibrium Assessments of Fiscal Sustainability in Norway," Handbook of Computable General Equilibrium Modeling, Elsevier.
    9. repec:esr:chaptr:jacb200210 is not listed on IDEAS
    10. Bergin, Adele & Duffy, David & Eakins, John & McCoy, Daniel, 2002. "Forecasting the Public Finances and the Macroeconomic Context for Budget 2003," Papers BP2003/1, Economic and Social Research Institute (ESRI).
    11. Erling Holmøy, 2007. "Fiscal sustainability: Must the problem be diminished before we can see it?," Discussion Papers 499, Statistics Norway, Research Department.

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