Posted on November 4, 2010 by iMFdirect
By Olivier Blanchard and Carlo Cottarelli
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How can governments have their cake and eat it too? How can fiscal policy provide sufficient support to economic activity, and reassure markets that fiscal solvency is not at risk? The poor state of fiscal accounts of most advanced countries calls for austere fiscal policies, before the confidence crisis that is now hitting a few small advanced economies spreads to the larger ones. But not right now: a frontloaded adjustment—that is a tightening that is not gradual but falls disproportionately early in the adjustment phase—could destabilize the recovery.
But can countries limit frontloading and still achieve credibility? Yes, but baking the right fiscal pie is likely to require a number of ingredients. While the exact recipe depends on country circumstances, here are our suggested ingredients. Continue reading
Filed under: Advanced Economies, Economic Crisis, Fiscal policy, IMF, International Monetary Fund, Public debt | Tagged: budget execution, budget preparation, deficit ceilings, economic recovery, Fiscal Monitor, fiscal policy, Fiscal rules, fiscal solvency, fiscal transparency, frontloaded adjustment, government spending ceilings | 9 Comments »
Posted on November 18, 2009 by iMFdirect
By Carlo Cottarelli
As I noted in my last post, government deficits in many countries—particularly in advanced countries—have jumped dramatically in the wake of the global crisis, and government debt has reached levels that could jeopardize longer term macroeconomic stability and growth. These countries will need to tighten fiscal policy significantly sometime down the road, especially where demographic trends are pushing up health and pension spending.
But fiscal deficits cannot be lowered in the immediate future. For the time being, fiscal (and monetary) policies must continue to support economic activity. The economic recovery is uneven and could be threatened by any premature withdrawal of policy support. Private demand is still unable to stand on its own two feet.
This gives rise to a policy conundrum. How can we reconcile the competing requirements of short-term support for the economy and longer term fiscal solvency?
Filed under: Advanced Economies, Economic Crisis, Fiscal Stimulus, growth | Tagged: exit strategies, fiscal policy, fiscal solvency, fiscal transparency, government debt, government deficits, retirement age | 3 Comments »