Chapter 3. Computable General Equilibrium Assessments of Fiscal Sustainability in Norway

The chapter demonstrates how the computable general equilibrium model MSG6, combined with special models of government expenditures, has been used to assess the long-run fiscal sustainability in Norway. The simulations suggest that Norway faces a severe fiscal sustainability problem in the long run, despite an exceptionally strong fiscal position at present. This result is found to be relatively robust to exogenous variations in productivity growth, petroleum prices, longevity, immigration and the health of the elderly. The chapter also discusses the fiscal effects of various policy responses, including the pension reform of 2011, improvements in the standards of public health services and care for the elderly, as well as a tighter fiscal policy rule. The simulation experiments demonstrate that general equilibrium mechanisms contribute significantly to the total effects.