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Long-Term Fiscal Sustainability in Advanced Economies

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  • Alan J Auerbach

Abstract

With the Great Recession leaving nearly all advanced economies with substantially higher debt–gross domestic product ratios, this paper re-evaluates the long-term fiscal sustainability of these economies based on current estimates of their current-policy fiscal trajectories. Through measuring fiscal imbalance, we find that for many countries, short-term fiscal measures such as the debt–gross domestic product ratio and current budget deficits as a share of gross domestic product bear little relationship to the sustainability of policy. The longer-term challenges these countries face are related much more to the future fiscal challenge of growing primary deficits, associated with the cost of providing pensions and health care in the face of growing old-age dependency ratios. While focusing on managing the short-term debt burden may help avoid crises like the one being played out in Greece, attention and policy actions must eventually turn to the longer-term fiscal problem.

Suggested Citation

  • Alan J Auerbach, 2016. "Long-Term Fiscal Sustainability in Advanced Economies," Asia and the Pacific Policy Studies 201614, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:appswp:201614
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    File URL: http://onlinelibrary.wiley.com/doi/10.1002/app5.131/epdf
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    Cited by:

    1. María del Carmen Ramos-Herrera & Simón Sosvilla-Rivero, 2020. "Fiscal Sustainability in Aging Societies: Evidence from Euro Area Countries," Sustainability, MDPI, vol. 12(24), pages 1-20, December.
    2. Lars P. Feld & Ekkehard A. Köhler & Julia Wolfinger, 2020. "Modeling fiscal sustainability in dynamic macro-panels with heterogeneous effects: evidence from German federal states," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(1), pages 215-239, February.
    3. Shiro Armstrong & Tatsuyoshi Okimoto, 2016. "Fiscal Sustainability in Japan," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 3(2), pages 235-243, May.

    More about this item

    Keywords

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    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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