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Ensuring Fiscal Sustainability in G-7 Countries

Author

Listed:
  • Daniel Leigh
  • David Hauner
  • Michael Skaarup

Abstract

Rising longevity, falling fertility rates, and the retirement of the baby boom generation will substantially raise age-related government spending in most advanced and many emerging market countries. This paper assesses the evolution of fiscal sustainability for each of the G-7 countries using two standard primary gap indicators. The estimated fiscal adjustment required to ensure long-run fiscal sustainability is substantial for all G-7 countries. In particular, ensuring fiscal sustainability would require an average improvement in the primary balance of about 4 percentage points of GDP. While the overall adjustment required to achieve long-run fiscal sustainability in G-7 countries is large, there are significant growth benefits to putting public finances on a sustainable footing in the near term versus delayed adjustment.

Suggested Citation

  • Daniel Leigh & David Hauner & Michael Skaarup, 2007. "Ensuring Fiscal Sustainability in G-7 Countries," IMF Working Papers 07/187, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/187
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    Cited by:

    1. Bevan, David L., 2012. "Aid, Fiscal Policy, Climate Change, and Growth," WIDER Working Paper Series 077, World Institute for Development Economic Research (UNU-WIDER).
    2. Martin Werding & Stuart R. McLennan, 2015. "International Portability of Health-Cost Cover: Mobility, Insurance, and Redistribution," CESifo Economic Studies, CESifo, vol. 61(2), pages 484-519.
    3. Nicolas Afflatet, 2016. "The impact of population ageing on public debt. A panel analysis for eighteen european countries," Working Papers 1615, University of Strathclyde Business School, Department of Economics.
    4. repec:unu:wpaper:wp2012-77 is not listed on IDEAS
    5. Volker Meier & Martin Werding, 2010. "Ageing and the welfare state: securing sustainability," Oxford Review of Economic Policy, Oxford University Press, vol. 26(4), pages 655-673, Winter.
    6. Murtaza H Syed & Michael Skaarup & Tarhan Feyzioglu, 2008. "Addressing Korea’s Long-Term Fiscal Challenges," IMF Working Papers 08/27, International Monetary Fund.
    7. Paolo Biraschi & Lorenzo Codogno & Federico Giammusso & Manuela Nenna & Juan Pradelli, "undated". "Are Italy's public finances sustainable? The role of demographics, productivity, and labour markets," Working Papers wp2008-6, Department of the Treasury, Ministry of the Economy and of Finance.
    8. Grech, Aaron George, 2012. "Evaluating the possible impact of pension reforms onfuture living standards in Europe," LSE Research Online Documents on Economics 51296, London School of Economics and Political Science, LSE Library.
    9. Werding, Martin & McLennan, Stuart, 2011. "International portability of health-cost coverage : concepts and experience," Social Protection and Labor Policy and Technical Notes 63929, The World Bank.
    10. Andersen, Torben M, 2008. "Fiscal Sustainability and Demographics - Should We Save or Work More?," CEPR Discussion Papers 7044, C.E.P.R. Discussion Papers.
    11. Andersen, Torben M., 2012. "Fiscal sustainability and demographics – Should we save or work more?," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 264-280.

    More about this item

    Keywords

    Aging; Economic models; Government expenditures; Group of seven; Fiscal sustainability; Fiscal policy; general equilibrium models; pension; public debt; health care; Genenral Equilibrium Models;

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