Friday, April 13, 2012


IWS Documented News Service


Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau




FISCAL CONSOLIDATION: HOW MUCH, HOW FAST AND BY WHAT MEANS? [12 April 2012],3746,en_2649_34109_50098732_1_1_1_1,00.html


Press Release 12 April 2012
Fiscal Consolidation: How much, how fast and by what means?,3746,en_21571361_44315115_50109953_1_1_1_1,00.html


12/04/2012 - The economic crisis that began in 2008 caused government deficits to surge and pushed public indebtedness to 100% of GDP for the OECD as a whole in 2011. In many countries, just stabilising debt, let alone bringing it down to a sustainable level, will be a major challenge. The poor state of public finances will require wide-ranging fiscal consolidation in most countries, particularly in those whose pre-existing imbalances have been aggravated by the crisis, as well as in those facing rapidly rising spending on health and long-term care.

Bringing debt down to prudent levels will require sustained fiscal consolidations of more than 3% of GDP in many, though not all countries. Some countries must anticipate extremely large efforts: Japan faces fiscal tightening of up to 12% of GDP, while consolidation in the United States, the United Kingdom and New Zealand is projected at more than 8% of GDP (see figure below, access the data In Excel).



Fiscal Consolidation: How much, how fast and by what means?

An Economic Outlook Report, OECD Economics Policy Paper No. 1, 12 April 2012

[full-text, 31 pages]


Key policy messages

  • Many countries face enormous fiscal consolidation challenges. Even if debt-to-GDP ratios stabilise over the medium term, they would remain at dangerous levels.
  • Countries should reduce debt levels to around 50% of GDP or lower to provide a safety margin against future adverse shocks.
  • Some countries – including Greece, Iceland, Ireland, Portugal and Spain – have started fiscal consolidations of between 5% and 12% of GDP, which are very large by historical comparison.
  • Other countries, notably, Japan, the United Kingdom and the United States require a fiscal tightening that would exceed 5% of GDP in order to bring their debt back to 50% of GDP by around mid-century.
  • Spending pressures, principally from health and long-term care will continue to mount, and could require an additional permanent fiscal tightening of several percentage points of GDP to help keep debt down in the future.
  • Due to the scale of consolidation needs, most countries will need a sustained period of fiscal tightening, acting on both the revenue and spending side.
  • The extent to which revenue or spending bears the brunt of consolidation will depend on whether spending is already high.
  • Given the current state of the economy and the already exhausted monetary stimulus, implementing a large degree of fiscal tightening could be particularly costly.
  • Using instruments with low multipliers initially may help minimise the trade-off with growth in the short run, but could involve other trade-offs, such as with credibility of the effort.
  • Given the scale of ageing and other spending pressures, reforms to entitlement programmes need to be an important part of any longer-term sustainability strategy.
  • Potential budgetary savings have been identified, which are either growth-friendly or have little adverse effect on economic activity. For most countries they amount to between 4% and 10% of GDP. More specifically:
    • Efficiency gains in public spending on health and education could yield savings of 0.5% to 4.5% of GDP in the longer term.
    • There is scope to broaden tax bases by eliminating tax expenditures (such as tax credits or deductions). These can be costly, with individual large items accounting for 1% of GDP or even more in many countries.
    • Environmental taxes, user fees for government services, taxes on immovable property and well designed financial sector levies could support fiscal consolidation while minimising welfare costs.
  • Fiscal institutions and fiscal rules may be helpful in buttressing credibility. In the longer run, better institutional frameworks can help ensure that fiscal policy stays on track.

Related material:

Fiscal consolidation: How much is needed to reduce debt to a prudent level?

OECD Economics Department Policy Note No. 11


What are the best policy instruments for fiscal consolidation?
OECD Economics Department Policy Note No. 12

Economics Department Working Papers on fiscal consolidation

*       How much is needed and how to reduce debt to a prudent level?


*       or;jsessionid=3ammo94e9smj5.epsilon?contentType=/ns/WorkingPaper&itemId=/content/workingpaper/5k9h28rhqnxt-en&containerItemId=/content/workingpaperseries/18151973&accessItemIds=&mimeType=application/pdf

*       [full-text, 76 pages]

*       Fiscal multipliers and fiscal consolidation


*       Or

*       [full-text, 43 pages]

*       Long-run projections and fiscal gap calculations


*       or


*       [full-text, 42 pages]

*       Case studies of large fiscal consolidation episodes


*       or


*       [full-text, 40 pages]

*       What factors determine the success of consolidation efforts?


*       or


*       [full-text, 29 pages]

*       What are the best policy instruments for fiscal consolidation?


*       or


*       [full-text, 62 pages]




This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.



Stuart Basefsky                  

Director, IWS News Bureau               

Institute for Workplace Studies

Cornell/ILR School                       

16 E. 34th Street, 4th Floor            

New York, NY 10016                       


Telephone: (607) 262-6041              

Fax: (607) 255-9641                      




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