Fiscal Consolidation in Israel: A Global Fiscal Model Perspective

By Natan P. Epstein, Selim A Elekdag, Marialuz Moreno Badia

November 1, 2006

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Format: Chicago

Natan P. Epstein, Selim A Elekdag, and Marialuz Moreno Badia. Fiscal Consolidation in Israel: A Global Fiscal Model Perspective, (USA: International Monetary Fund, 2006) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Fiscal consolidation has become an important policy prescription for many emerging market countries (EMCs), particularly for the highly indebted ones. Although prudent fiscal policies tend to reduce vulnerabilities, their implementation is usually postponed. This paper represents, to the best of our knowledge, one of the first attempts in the literature to quantify the costs of delaying fiscal consolidation in an EMC. In particular, using the IMF's Global Fiscal Model (GFM), we find that early consolidation through expenditure cuts would result in a substantial increase in Israel's long-term output growth relative to the case with delayed fiscal adjustment. Using an alternative fiscal instrument, we find that delaying tax cuts would result in cumulative real GDP that is much larger than otherwise.

Subject: Expenditure, Fiscal consolidation, Fiscal policy, Government debt management, Public debt

Keywords: Real GDP, Real interest rate, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/253
Stock No:

WPIEA2006253
ISBN:

9781451865134
ISSN:

1018-5941

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