This paper explores the political economy of fiscal adjustment. It begins with an examination of the evidence for, and sources of, ‘deficit bias’, including political and governance factors, public attitudes, the role of financial markets and imprecision about which debt targets should be...

Based on an empirical application for Germany, we compare two methods of measuring fiscal sustainability: the generational-accounting approach and the OECD method. In a first step, we show that the two methods can be transformed into one another. Hence, the indicators of generational accounting...

This paper examines various aspects of fiscal policy in Slovenia, in particular fiscal consolidation, pension reform, efficiency of government spending and the tax system. It finds that Slovenia belongs to the group of new EU member countries, which have given in the past a high priority to...

Economic growth is projected to be strengthening from mid-2011 onwards, but will be insufficient to restore the sustainability of public finances. The Belgian strategy to prefund ageing costs by generating fiscal surpluses to bring down public debt was derailed by the global crisis. Restoring...

We analyze the link between the sustainability of bond-financed deficit policy and involuntary unemployment in an overlapping generations model incorporating the fair wage hypothesis. If the fiscal deficit policy is sustainable, reductions in bond-financed deficit increase per worker capital...

We investigate how large a primary deficit-to-GDP ratio Japan’s government can sustain. For this investigation, we construct an overlapping generations model in which multi-generational households live and the government maintains a constant ratio of the primary deficit to GDP. We numerically...

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...

Euro area entry calls for more fiscal flexibility to absorb cyclical shocks that cannot be dealt with by the common monetary policy. At the same time fiscal consolidation must not be put at risk, especially given rising ageing related costs. The current fiscal framework could be improved by...

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...

The paper considers the implications for the EU accession candidates of Central and Eastern Europe of the fiscal-financial constraints imposed by the Stability and Growth Pact and the Maastricht Treaty. Our findings apply also to those current EU members whose initial conditions (e.g....