An Approach to Long-Term Fiscal Policy Analysis

July 1, 2004

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Format: Chicago

Papa M N'Diaye, and Steven V Dunaway. An Approach to Long-Term Fiscal Policy Analysis, (USA: International Monetary Fund, 2004) accessed November 21, 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

This paper proposes an approach to setting fiscal policy that factors in the longer-term budgetary pressures that countries face owing, in particular, to population aging and rising health care costs. The approach attempts to overcome the difficulties in evaluating economic trade-offs and social welfare over extended periods. Long-term fiscal projections from the "Intergenerational Report" published as part of the Australian budget in May 2002 are used in a simple model of the Australian economy to illustrate some of the longer-term trade-offs that need to be considered in framing budgets over the medium term. These illustrative simulations, in particular, point out the importance of smoothing fiscal adjustment over time and, hence, the need for careful planning. Smoothing fiscal adjustment, however, raises a new set of questions regarding burden sharing across generations and what costs should be shared.

Subject: Aging, Expenditure, Fiscal consolidation, Fiscal policy, Health care spending, Population and demographics, Public debt

Keywords: Aging, Cost, Cost driver, Fiscal consolidation, Fiscal Policy, Fiscal policy action, Fiscal policy adjustment, Government debt-to-GDP ratio, Health Care, Health care spending, IGR projection, Longer-term cost, Population Aging, Ratio, Sc, WP

Publication Details

Pages:

13
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/113
Stock No:

WPIEA1132004
ISBN:

9781451853735
ISSN:

1018-5941

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