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New Zealand's Fiscal Policy Framework: Experience and Evolution

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Abstract

Fiscal policy in New Zealand has seen a consolidation of the Government’s position and continuing refinements to the institutional framework and Budget processes. The key institutional change has been the introduction of the Fiscal Responsibility Act 1994. The paper sets out the background to the fiscal policy framework, including fiscal history and various institutional changes in the public sector. This paper is a companion paper to Treasury Working Paper 01/24 by Angela Barnes and Steve Leith. The key elements of the fiscal policy framework are explained and compared to various “fiscal rules” used internationally. The New Zealand framework differs from that used elsewhere, especially in its use of legislated “principles of responsible fiscal management” as opposed to mandatory targets. However, the Fiscal Responsibility Act 1994 does require Governments to set short-term fiscal intentions and long-term fiscal objectives for a range of fiscal aggregates. The paper discusses the experience with the framework including a comparison of fiscal outcomes with fiscal objectives. The New Zealand experience has seen the evolution of specific operational targets (the fiscal provisions) to help improve the consistency of short-term intentions with longer-term fiscal objectives. The paper concludes with a set of challenges facing the framework, both short- and long-term.

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  • John Janssen, 2001. "New Zealand's Fiscal Policy Framework: Experience and Evolution," Treasury Working Paper Series 01/25, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:01/25
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    File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2001/01-25/twp01-25.pdf
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    References listed on IDEAS

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    1. Darrel Cohen & Glenn Follette, 2000. "The automatic fiscal stabilizers: quietly doing their thing," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 35-67.
    2. V. V. Chari & Patrick J. Kehoe & Edward C. Prescott, 1988. "Time consistency and policy," Staff Report 115, Federal Reserve Bank of Minneapolis.
    3. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 21-36, Summer.
    4. Michael Reddell, 1999. "Origins and early development of the inflation target," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, September.
    5. Alan J. Auerbach, 1994. "The U.S. Fiscal Problem: Where We are, How We Got Here, and Where We're Going," NBER Chapters,in: NBER Macroeconomics Annual 1994, Volume 9, pages 141-186 National Bureau of Economic Research, Inc.
    6. Alan J. Auerbach & Daniel R. Feenberg, 2000. "The Significance of Federal Taxes as Automatic Stabilizers," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 37-56, Summer.
    7. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1329-1368.
    8. Thomas Dalsgaard & Alain de Serres, 1999. "Estimating Prudent Budgetary Margins for 11 EU Countries: A Simulated SVAR Model Approach," OECD Economics Department Working Papers 216, OECD Publishing.
    9. Julie Tam & Heather Kirkham, 2000. "Automatic Fiscal Stabilisers: Implications for New Zealand," Treasury Working Paper Series 01/10, New Zealand Treasury, revised 2001.
    10. Polackova, Hana, 1997. "Population aging and financing of government liabilities in New Zealand," Policy Research Working Paper Series 1703, The World Bank.
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    Cited by:

    1. Renee Philip & John Janssen, 2002. "Indicators of Fiscal Impulse for New Zealand," Treasury Working Paper Series 02/30, New Zealand Treasury.
    2. Lees, Kirdan, 2013. "Fighting fit? Assessing New Zealand’s fiscal sustainability," NZIER Working Paper 2013/5, New Zealand Institute of Economic Research.
    3. Angela Barnes & Steve Leith, 2001. "Budget Management That Counts: Recent Approaches to Budget and Fiscal Management in New Zealand," Treasury Working Paper Series 01/24, New Zealand Treasury.

    More about this item

    Keywords

    Fiscal policy; Fiscal Responsibility Act;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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