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Israel: Monetary and Fiscal Policy

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  • Charlotte Moeser

    (OECD)

Abstract

Israel’s monetary policy framework is broadly sound. Inflation targeting was introduced in the early 1990s, and low single-digit inflation was established by the end of the decade. However, fast transmission from the exchange rate to inflation means the operational challenges differ somewhat from those in many OECD countries. Also, the Bank of Israel has been intervening heavily in the foreign-exchange market, marking a departure from standard practice in inflation targeting. Past progress in fiscal consolidation has been affected by several economic shocks, including the recent downturn. The government’s strategy of lowering tax rates on corporate profits and on personal income is assessed. Also, various avenues for raising revenues on other fronts are suggested. Primary civilian spending is now relatively low in international comparison, the room for savings has narrowed, and many of the necessary future structural reforms probably require initial fiscal outlays. In budgeting, which is strongly controlled by the Ministry of Finance, there is room for various process improvements. This Working Paper relates to the 2009 OECD Economic Survey of Israel (www.oecd.org/eco/surveys/israel). Les politiques monétaire et budgétaire en Israël Le cadre de la politique monétaire d’Israël est globalement solide. Le ciblage de l’inflation a été introduit au début des années 1990 et l’inflation s’est maintenue à un niveau nettement inférieur à 10 % dès la fin de cette même décennie. Une transmission rapide du taux de change à l’inflation signifie cependant que les problèmes opérationnels sont assez différents de ceux de la plupart des pays de l’OCDE. Par ailleurs, la Banque d’Israël intervient sur le marché des changes, rompant ainsi avec la pratique habituellement suivie pour cibler l’inflation. Les progrès réalisés dans l’assainissement des finances publiques ont été compromis par plusieurs chocs économiques, et notamment la dernière récession. Nous dressons le bilan de la stratégie du gouvernement de réduire l’impôt sur les sociétés et les tranches supérieures de l’impôt sur le revenu des personnes physiques et proposons plusieurs moyens d’augmenter les recettes sur d’autres fronts. Les dépenses civiles primaires sont désormais relativement faibles par rapport aux autres pays, les possibilités de réaliser des économies se sont réduites et beaucoup de réformes structurelles nécessaires obligeront à faire des dépenses budgétaires initiales. Enfin il y a des améliorations à apporter au processus d’élaboration du budget, qui est étroitement contrôlé par le ministère des Finances. Ce document de travail se rapporte à l’étude économique d’Israël publié par l'OCDE en 2010 (www.oecd.org/eco/surveys/israel).

Suggested Citation

  • Charlotte Moeser, 2010. "Israel: Monetary and Fiscal Policy," OECD Economics Department Working Papers 783, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:783-en
    DOI: 10.1787/5kmd3kg94jg1-en
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    References listed on IDEAS

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    More about this item

    Keywords

    budget rules; ciblage de l’inflation; dette publique; déficit des administrations publiques; dépenses publiques; fiscal policy; fiscalité; government deficit; inflation targeting; Israel; Israël; macroeconomic policies; monetary policy; OCDE; OECD; politique budgétaire; politique macro-économique; politique monétaire; public debt; public spending; règles budgétaires; taxation;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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