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What Promotes Fiscal Consolidation: OECD Country Experiences

Author

Listed:
  • Stéphanie Guichard
  • Mike Kennedy
  • Eckhard Wurzel
  • Christophe André

Abstract

Fiscal consolidation is required in most OECD countries. This is especially so in view of mediumand long-term spending pressures on public finances, related, inter alia, to ageing. Based on a dataset covering a large number of OECD fiscal consolidation episodes starting in the late 1970s, the paper presents evidence, both descriptive and econometric, on macroeconomic conditions and policy set-ups that have been effective in triggering and sustaining fiscal consolidation. Main findings include: Large initial deficits and high interest rates have been important in prompting fiscal adjustment and also in boosting the overall size and duration of consolidation. Concerning the quality of fiscal policies, an emphasis on cutting current expenditures has been associated with overall larger consolidation. Fiscal rules with embedded expenditure targets tended to be associated with larger and longer adjustments, pointing to institutional features playing a potentially important role in generating successful consolation efforts. Experience across countries also shows that certain design features such as transparency, flexibility to face shocks and effective enforcement mechanisms seem important for the effectiveness of fiscal rules. Qu'est-ce qui favorise la consolidation budgétaire : L'expérience des pays de l'OCDE La plupart des pays de l’OCDE doivent consolider leurs finances publiques. C’est particulièrement le cas en raison des pressions de dépenses à moyen et long terme sur les finances publiques, liées entre autres au vieillissement des populations. Sur la base de données couvrant un grand nombre d’épisodes de consolidation budgétaire dans les pays de l’OCDE depuis la fin des années 70, le papier met en évidence, á la fois de manière descriptive et économétrique, les conditions macroéconomiques et les politiques qui ont été efficaces pour initier et supporter la consolidation budgétaire. Il montre en particulier que lorsque le déficit budgétaire et les taux de grand intérêt sont élevés la consolidation est non seulement plus probable mais aussi plus importante et plus longue. Concernant la qualité de l'ajustement budgétaire, des efforts concentrés sur la réduction des dépenses courantes sont associés à des consolidations plus importantes. La présence de règles budgétaires incluant des cibles de dépenses a été généralement associée à des ajustements plus important et plus longs, soulignant ainsi que les dispositifs institutionnels jouent un rôle potentiellement important pour le succès des consolidations budgétaires. L’expérience des différents pays montre aussi que certaines caractéristiques telles que la transparence, la flexibilité face à des chocs et les mécanismes d’application efficaces semblent importantes pour l?efficacité des règles budgétaires.

Suggested Citation

  • Stéphanie Guichard & Mike Kennedy & Eckhard Wurzel & Christophe André, 2007. "What Promotes Fiscal Consolidation: OECD Country Experiences," OECD Economics Department Working Papers 553, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:553-en
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    File URL: http://dx.doi.org/10.1787/180833424370
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    Keywords

    consolidation budgétaire; deficit; dette publique; déficit; dépenses publiques; fiscal consolidation; fiscal rules; government revenue; government spending; public debt; recettes budgétaires; règles budgétaires;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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