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Decomposition of Fiscal Deterioration in the OECD

Published online by Cambridge University Press:  26 March 2020

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Extract

Government fiscal positions in all the advanced economies suffered severe deteriorations during the financial crisis. Figure 1 illustrates the cumulative deterioration of the government budget ratio as a per cent of GDP between 2007 and 2009 in a selection of OECD economies. The sharpest declines materialised in Ireland, Spain and Finland, while public finances in Austria, Germany and Italy have held up better. Budget deficits have worsened in part because of the cyclical downturn, in part because of the policy response to the crisis, including both fiscal stimulus packages and certain fiscal costs related to government support of financial institutions, and in part because of a change in the relationship between revenue and production, which may prove longer-term.

Type
The World Economy
Information
National Institute Economic Review , Volume 213 , July 2010 , pp. F13 - F18
Copyright
Copyright © 2010 National Institute of Economic and Social Research

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References

Notes

3 See NiGEMWEB for details on NiGEM.

4 Trend growth in GDP is notoriously difficult to estimate without a several years’ lag, and trend growth in the subcomponents of GDP is even more difficult to estimate. This very simple approach probably overestimates the impact of the cycle in our analysis if the financial crisis has been associated with a permanent decline in trend output.

5 For example, if consumption declined by 2 per cent in 2008 and trend growth in consumption over the period 1997—2007 was 2 per cent per annum, the table would show —4 for consumption in 2008 in that country.

6 See Annex Tables 27 and 28 in OECD (2010), OECD Economic Outlook, Vol. 2010/1, No. 87, May.

7 These estimates are based on information in Table 1.7 and 1.8 in the OECD's June 2009 Economic Outlook, updated with information available in the European Commission's Spring 2010 forecast and Coenen et al. (2010).