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A Re-assessment of Fiscal Space in OECD Countries

Author

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  • Jarmila Botev
  • Jean-Marc Fournier
  • Annabelle Mourougane

Abstract

To what extent can public deficits increase without putting fiscal sustainability at risk, given the specific current macroeconomic situation of protracted low growth and low interest rates, combined with relatively high government debt levels? The answer depends on many factors, such as the state of the economy, the fiscal track record and projections of population ageing and their effect on government spending. This paper makes use of three different approaches to better assess fiscal space, which can be defined in a broad manner as the extent to which public debt can increase. These approaches converge to a conclusion that there is fiscal space in most of the large advanced economies. There is also evidence that fiscal space may have risen in most OECD countries since 2014, mainly driven by the decrease in interest rates. Reforms to health and pension programmes would help to create additional fiscal space. Une ré-évaluation des marges de manoeuvre budgétaires dans les pays de l'OCDE Dans quelle mesure les déficits publics peuvent-ils augmenter sans compromettre la viabilité budgétaire? La situation macroéconomique actuelle, caractérisée par une faible croissance prolongée et de faibles taux d’intérêt, combinée à un niveau d’endettement public relativement élevé, justifie une réévaluation de cette question. Sa réponse dépend de nombreux facteurs, tels que l’état de l’économie, les antécédents budgétaires ou les projections du vieillissement de la population et leurs effets sur les dépenses gouvernementales. Ce document utilise trois approches différentes pour mieux évaluer les marges de manoeuvre budgétaires, qui peuvent être définie de manière large comme la mesure dans laquelle la dette publique peut augmenter. Ces approches convergent vers la conclusion qu’il existe des marges de manoeuvre budgétaires dans la plupart des grandes économies avancées. Il est également prouvé que l’espace budgétaire peut avoir augmenté dans la plupart des pays de l’OCDE depuis 2014, principalement sous l’effet de la baisse des taux d’intérêt. Les réformes des programmes de santé et de retraite aideraient à créer des marges de manoeuvre budgétaires supplémentaires.

Suggested Citation

  • Jarmila Botev & Jean-Marc Fournier & Annabelle Mourougane, 2016. "A Re-assessment of Fiscal Space in OECD Countries," OECD Economics Department Working Papers 1352, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:1352-en
    DOI: 10.1787/fec60e1b-en
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    References listed on IDEAS

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    Cited by:

    1. Luca Metelli & Kevin Pallara, 2020. "Fiscal space and the size of the fiscal multiplier," Temi di discussione (Economic working papers) 1293, Bank of Italy, Economic Research and International Relations Area.
    2. Sena Kimm Gnangnon, 2019. "Fiscal Space for Trade: How Could the International Trade Community Help?," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 1-42, February.
    3. Otaviano Canuto & Fahd Azaroual, 2023. "Fiscal Space in African Economies and Base Erosion and Profit Shifting (BEPS)," Policy notes & Policy briefs 2020, Policy Center for the New South.
    4. Kose, M. Ayhan & Kurlat, Sergio & Ohnsorge, Franziska & Sugawara, Naotaka, 2022. "A cross-country database of fiscal space," Journal of International Money and Finance, Elsevier, vol. 128(C).
    5. Sena KIMM Gnangnon, 2020. "Export Product Diversification and Fiscal Space Volatility in Developing Countries: Exploring the Economic Growth Volatility Channel," Economics Bulletin, AccessEcon, vol. 40(3), pages 1837-1854.
    6. Fournier, Jean-Marc & Fall, Falilou, 2017. "Limits to government debt sustainability in OECD countries," Economic Modelling, Elsevier, vol. 66(C), pages 30-41.
    7. Ioana-Laura Țibulcă, 2021. "Debt Sustainability: Can EU Member States Use Environmental Taxes to Regain Fiscal Space?," Sustainability, MDPI, vol. 13(11), pages 1-15, May.
    8. Adham Jaber, 2022. "Improving the estimates of fiscal space," French Stata Users' Group Meetings 2022 16, Stata Users Group.
    9. Christophe André & Hyunjeong Hwang, 2018. "Tax reform to support growth and employment in Finland," OECD Economics Department Working Papers 1468, OECD Publishing.
    10. Jean-Marc Fournier & Manuel Bétin, 2018. "Limits to government debt sustainability in middle-income countries," OECD Economics Department Working Papers 1493, OECD Publishing.
    11. Gnangnon Sena Kimm, 2018. "Export Product Concentration and De Facto Fiscal Space: Does Openness to International Trade matter?," Global Economy Journal, De Gruyter, vol. 18(1), pages 1-12, March.
    12. Annabelle Mourougane & Jarmila Botev & Jean-Marc Fournier & Nigel Pain & Elena Rusticelli, 2016. "Can an Increase in Public Investment Sustainably Lift Economic Growth?," OECD Economics Department Working Papers 1351, OECD Publishing.
    13. El-Shagi, Makram & Schweinitz, Gregor von, 2021. "Fiscal policy and fiscal fragility: Empirical evidence from the OECD," Journal of International Money and Finance, Elsevier, vol. 115(C).
    14. Sèna Kimm Gnangnon & Jean-François Brun, 2020. "Tax reform and fiscal space in developing countries," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(2), pages 237-265, June.
    15. P. Butzen & S. Cheliout & N. Cordemans & E. De Prest & W. Melyn & L. Van Meensel & S. Van Parys, 2017. "Towards a new policy mix in the euro area ?," Economic Review, National Bank of Belgium, issue iii, pages 63-91, December.
    16. Ms. Anja Baum & Andrew Hodge & Ms. Aiko Mineshima & Ms. Marialuz Moreno Badia & Rene Tapsoba, 2017. "Can They Do It All? Fiscal Space in Low-Income Countries," IMF Working Papers 2017/110, International Monetary Fund.
    17. repec:bla:pacecr:v:23:y:2018:i:1:p:8-26 is not listed on IDEAS
    18. Sena Kimm Gnangnon, 2019. "De Facto Fiscal Space in Donor-countries and Their Aid Supply: To What Extent is Trade-related Aid Supply Affected?," South Asian Journal of Macroeconomics and Public Finance, , vol. 8(1), pages 1-25, June.

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    More about this item

    Keywords

    fiscal space; fiscal sustainability; market access;
    All these keywords.

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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