IDEAS home Printed from https://ideas.repec.org/p/fca/wpfnca/2002-10.html
   My bibliography  Save this paper

Prudence, Scope for Reducing Program Spending and Policy Rules on Medium-Term Fiscal Planning

Author

Listed:
  • Patrick Georges
  • Nicolas Moreau

Abstract

This paper shows that managing the risk of a budget deficit has (at least) two elements, the level of fiscal prudence, and the scope for discretionary measures (e.g., scope for reducing program spending). These two elements jointly determine the probability of a deficit outcome. The magnitude of the scope is limited by a multi-year pre-commitment to a minimum level (a "floor") of fiscal measures (program spending and taxes) that is "irreversible" or permanent for the purpose of medium-term fiscal planning. The policy implications of the paper are twofold. First, one has to know how much scope is available for reducing program spending in order to provide estimates of "adequate" levels for fiscal prudence. There is, however, little consensus about how much scope is available. Second, the timing and magnitude of the enrichments of permanent tax and spending measures should be linked to the occurrence of favourable fiscal developments that raise the scope for discretionary measures. This strategy would enhance the fiscal authority’s pre-commitment to permanent measures without substantially increasing the risk of a deficit outcome. Ce papier montre que la gestion du risque d’un déficit budgétaire comporte (au moins) deux éléments: le niveau de prudence fiscale et la marge de manœuvre disponible pour des mesures budgétaires discrétionnaires (e.g., potentiel de réduction des dépenses de programmes). Ces deux éléments déterminent conjointement la probabilité d’observer un déficit budgétaire. Le potentiel de réduction des dépenses de programmes est limité par un engagement à un niveau minimum (« plancher») de dépense de programme au cours d’un horizon temporel à moyen terme (10 ans). Cet engagement est, par définition, irrévocable, ce qui permet d’assurer un niveau minimum de dépenses permanentes au cours de l’horizon temporel considéré. Deux principales implications politiques découlent de ce papier. Premièrement, il est important de connaître la marge de manœuvre disponible pour des mesures budgétaires discrétionnaires de façon à allouer un niveau adéquat de prudence budgétaire. Cependant, il n’existe pas de consensus concernant cette marge de manœuvre discrétionnaire (en particulier le potentiel de réduction des dépenses). Deuxièmement, le moment (ou « timing ») et la taille des enrichissements des mesures permanentes de dépenses (ou de taxations) devraient être associés à la présence de développements budgétaires augmentant la marge de manœuvre discrétionnaire. Cette stratégie permettrait d’améliorer la mise en œuvre de mesures budgétaires permanentes sans toutefois faire augmenter de façon substantielle le risque d’observer un déficit budgétaire.

Suggested Citation

  • Patrick Georges & Nicolas Moreau, "undated". "Prudence, Scope for Reducing Program Spending and Policy Rules on Medium-Term Fiscal Planning," Working Papers-Department of Finance Canada 2002-10, Department of Finance Canada.
  • Handle: RePEc:fca:wpfnca:2002-10
    as

    Download full text from publisher

    File URL: http://www.fin.gc.ca/scripts/Publication_Request/request2_e.asp?doc=wp2002-10e.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Doug Hostland, "undated". "Fiscal Planning in an Era of Economic Stability," Working Papers-Department of Finance Canada 2003-10, Department of Finance Canada.
    2. Mr. Philippe D Karam & Mr. Douglas Hostland, 2005. "Assessing Debt Sustainability in Emerging Market Economies Using Stochastic Simulation Methods," IMF Working Papers 2005/226, International Monetary Fund.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fca:wpfnca:2002-10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gustavo Durango (email available below). General contact details of provider: https://edirc.repec.org/data/fingvca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.