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Some Uncomfortable Arithmetic Regarding Europe’s Public Finances

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  • International Monetary Fund

Abstract

Traditional fiscal indicators focused on measures of current deficits and debt miss the potentially important implications of current policies for future public finances. This could be problematic, including in the case of Europe, where population aging is expected to pose additional fiscal costs not captured by such indicators. To better gauge the state of public finances in the EU27 countries, this paper derives forward-looking fiscal measures of intertemporal net worth both directly from the European Commission’s Aging Working Group’s long-run indicators and using a comprehensive public-sector balance sheet approach. These measures could be used as an "early warning" mechanism and also as a communication device with the public. Current estimates indicate that, on existing policies, the intertemporal net worth of the EU27 is deeply negative, even in excess of its GDP level, and is projected to worsen further over time. This suggests that Europe’s current policies need to be significantly strengthened to bring future liabilities in line with the EU governments’ capacity to generate assets.

Suggested Citation

  • International Monetary Fund, 2010. "Some Uncomfortable Arithmetic Regarding Europe’s Public Finances," IMF Working Papers 10/177, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/177
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    References listed on IDEAS

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    1. Balassone, F. & Cunha, J. & Langenus, G. & Manzke, B. & Pavot, J. & Prammer, D. & Tommasino, P., 2008. "Fiscal sustainability and policy implications for the euro area," Working papers 225, Banque de France.
    2. Franco, Daniele & Marino, Maria Rosaria & Zotteri, Stefania, 2004. "Pension Expenditure Projections, Pension Liabilities and European Union Fiscal Rules," Discussion Paper 231, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
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    Citations

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    Cited by:

    1. 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.
    2. Timothy C. Irwin, 2015. "Defining The Government'S Debt And Deficit," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 711-732, September.
    3. Lojsch, Dagmar Hartwig & Rodríguez-Vives, Marta & Slavík, Michal, 2011. "The size and composition of government debt in the euro area," Occasional Paper Series 132, European Central Bank.
    4. Stavros A. Zenios, 2013. "The Cyprus Debt: Perfect Crisis and a Way Forward," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 7(1), pages 3-45, June.
    5. Consiglio, Andrea & Tumminello, Michele & Zenios, Stavros A., 2015. "Designing and pricing guarantee options in defined contribution pension plans," Insurance: Mathematics and Economics, Elsevier, vol. 65(C), pages 267-279.
    6. Nan Geng, 2013. "Toward A Sustainable and Inclusive Consolidation in Lithuania; Past Experience and What is Needed Going Forward," IMF Working Papers 13/157, International Monetary Fund.
    7. International Monetary Fund, 2013. "Republic of Lithuania; Selected Issues," IMF Staff Country Reports 13/82, International Monetary Fund.
    8. Yannis M. Ioannides, 2015. "Why Productivity Enhancing Reforms Will Help Greece Exit the Crisis and Usher in Long Run Growth," Discussion Papers Series, Department of Economics, Tufts University 0807, Department of Economics, Tufts University.

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