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Illustrating long-run fiscal challenges using the Long-Term Model

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  • Yvan Guillemette

Abstract

This paper presents updated estimates of long-run fiscal gaps for 35 OECD and accession candidate countries using the OECD Global Long-Term Model. The long-run fiscal gap measures the fiscal adjustment required at the 2060 horizon to keep public debt ratios stable near current levels while maintaining current service standards and benefit entitlements. The methodology incorporates several refinements, including projected increases in defence spending and a more detailed treatment of primary expenditure. In the absence of additional policy action, the median country would require a fiscal adjustment of 4.7 percentage points of GDP between 2027 and 2060 to stabilise debt, with substantially larger adjustments in some countries. Population ageing is the main driver of long-run fiscal pressures through higher pension, health and long-term care spending, compounded in many cases by weak initial fiscal positions. The paper also assesses the sensitivity of fiscal gaps to key assumptions and policy scenarios.

Suggested Citation

  • Yvan Guillemette, 2026. "Illustrating long-run fiscal challenges using the Long-Term Model," OECD Economics Department Working Papers 1877, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:1877-en
    DOI: 10.1787/421bf86f-en
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    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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