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Challenges and Choices: Modelling New Zealand’s Long-term Fiscal Position

Author

Listed:
  • Matthew Bell
  • Gary Blick
  • Oscar Parkyn
  • Paul Rodway
  • Polly Vowles

    () (The Treasury)

Abstract

This working paper provides further detail on the modelling behind Challenges and Choices – New Zealand’s Long-Term Fiscal Statement, published on 29 October 2009. Building on the first Statement of 2006, we construct two main fiscal scenarios over a 40- year horizon. The historic trends scenario allows historic and current spending and revenue settings to interact with changing demography. The sustainable debt scenario applies a fiscal constraint on non-benefit spending so that Crown net debt follows the Government’s medium-term fiscal targets. The modelling innovations introduced this time do not alter the basic structure and principles of the Long-term Fiscal Model, but instead provide insights into government spending: public sector productivity growth and the growth of the basket of services each person receives. These innovations enable us to illustrate the effects of tradeoffs between broad spending categories in a constrained fiscal environment. In the 2009 Statement, these policy changes are combined into three possible scenarios for obtaining a sustainable fiscal position. The paper also illustrates the sensitivity of the fiscal position to small changes in the demographic, macroeconomic and fiscal modelling assumptions.

Suggested Citation

  • Matthew Bell & Gary Blick & Oscar Parkyn & Paul Rodway & Polly Vowles, 2010. "Challenges and Choices: Modelling New Zealand’s Long-term Fiscal Position," Treasury Working Paper Series 10/01, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:10/01
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    File URL: http://www.treasury.govt.nz/publications/research-policy/wp/2010/10-01/twp10-01.pdf
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    Citations

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    Cited by:

    1. Robert A Buckle & Amy A Cruickshank, 2013. "The Requirements for Long-Run Fiscal Sustainability," Treasury Working Paper Series 13/20, New Zealand Treasury.
    2. Werner Schule, 2010. "The Potential Contribution of Fiscal Policy to Rebalancing and Growth in New Zealand," IMF Working Papers 10/128, International Monetary Fund.
    3. Ross Guest, 2013. "Population Ageing and Productivity: Implications and Policy Options for New Zealand," Treasury Working Paper Series 13/21, New Zealand Treasury.
    4. Creedy, John & Gemmell, Norman, 2013. "Can Automatic Tax Increases Pay for the Public Spending Effects of Population Ageing in New Zealand?," Working Paper Series 2820, Victoria University of Wellington, Chair in Public Finance.
    5. Lees, Kirdan, 2013. "Fighting fit? Assessing New Zealand’s fiscal sustainability," NZIER Working Paper 2013/5, New Zealand Institute of Economic Research.
    6. International Monetary Fund, 2010. "New Zealand; Selected Issues Paper," IMF Staff Country Reports 10/145, International Monetary Fund.
    7. Ross Guest, 2013. "Intergenerational Smoothing of New Zealand’s Future Fiscal Costs," Treasury Working Paper Series 13/12, New Zealand Treasury.

    More about this item

    Keywords

    Population; projections; social expenditure; fiscal costs; New Zealand;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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