Path-breaking research on one of the most important macroeconomic policy challenges in the post-crisis world, presented in accessible language Written and researched by a team of experts from the International Monetary Fund, other policy-making institutions, and academia, this timely book looks at fiscal adjustment plans in advanced economies, comparing the planned or projected reductions in debts and deficits to the actual outcomes, and explaining why objectives were met in some cases but missed in others. An overview reveals pitfalls to avoid and lessons learned for securing successful fiscal adjustment.
- Written by experts in the field
- Addresses public concern about skyrocketing government debts
- Contains cutting edge research that changes the way we look at fiscal adjustment
- Presents meticulous archival research in compelling and engaging case studies
- Explores lessons learned and policy implications going forward
- Includes country coverage of all G7 and European Union economies
Educating and informing investors, economists, and the general public, this important book looks at why some attempts to curb debts and deficits succeed whereas others fail, as well as how to ensure successful fiscal adjustment in the period ahead.
Table of Contents:
Foreword ix Acknowledgments xi
Introduction xiii
CHAPTER 1 Canada: A Success Story 1
Cemile Sancak, Lucy Qian Liu, and Taisuke Nakata
Introduction 1
Background 2
Plans versus Outcomes: Macroeconomic Factors 7
Nature and Composition of Adjustment 13
Structural Reforms 21
Extent to which Adjustments Were Sustained 23
Conclusion 25
Notes 27
CHAPTER 2 United States: The Quest for Fiscal Discipline 31
Jiri Jonas
Introduction 31
First Attempt: Balanced Budget and Emergency Deficit Control Act 1985 33
Second Attempt: Omnibus Budget Reconciliation Act of 1990 36
Third Attempt: Omnibus Budget Reconciliation Act of 1993 38
Actual versus Projected Fiscal Performance under Omnibus Budget Reconciliation Act of 1993 42
1990s Deficit Reduction: Good Policy or Good Luck? 44
Easy Won, Easy Lost? 50
Conclusion 52
Notes 54
CHAPTER 3 France: Virtue and Fortune 57
Edouard Martin, Irina Tytell, and Irina Yakadina
Introduction: Factors Underlying the Need for Fiscal Consolidation 57
Early Attempts at Fiscal Adjustment 61
A First Attempt at Medium-Term Fiscal Consolidation, 1994–97 64
A More Systematic Approach to Medium-Term Budgeting: Consolidation Experiences under the Stability and Growth Pact 72
Conclusion 81
Notes 82
CHAPTER 4 Germany: Fiscal Adjustment Attempts With and Without Reforms 85
Christian Breuer, Jan Gottschalk, and Anna Ivanova
Introduction 85
1975–79 Consolidation Attempt 88
1981–85 Consolidation Attempt 93
1991–95 Consolidation Attempt 99
2003–07 Consolidation Attempt 105
Lessons 110
Notes 112
CHAPTER 5 United Kingdom: Four Chancellors Facing Challenges 115
Toni Ahnert, Richard Hughes, and Keiko Takahashi
Introduction 115
Selection of Consolidation Plans 116
Background, Content, and Performance of the Four Adjustment Plans 117
Determinants of Success and Failure 125
Lessons from Success and Failure 138
Appendix 5A. United Kingdom: Fiscal Adjustment Plans and Outturns 140
Notes 150
CHAPTER 6 Italy: Medium-Term Fiscal Planning under Frequent Government Changes 153
Fabrizio Balassone, Sandro Momigliano, and Pietro Rizza
Introduction 153
A Brief History of Italy’s Fiscal Planning Framework 155
Short-Term Origins of Medium-Term Failures 157
A Narrative of Design and Performance of Pre- and Post-European Monetary Unit Plans 162
Implementing Plans for the Year Ahead 165
Two Important Plans Analyzed in Detail 167
Conclusion 172
Notes 174
CHAPTER 7 Japan: Fiscal Adjustment Plans and Macroeconomic Shocks 177
Keiko Takahashi and Kiichi Tokuoka
Introduction 177
The 1997 Fiscal Structural Reform Act 178
Medium-Term Fiscal Adjustment Plans: Fiscal Year 2002 and the Following 189
Conclusion 203
Appendix 7A: The Bohn Fiscal Sustainability Test 206
Appendix 7B: Timeline of Medium-Term Fiscal Adjustment Plans in Japan 209
Notes 209
CHAPTER 8 The Performance of Large Fiscal Adjustment Plans in the European Union: A Cross-Country Statistical Analysis 213
S. Ali Abbas, Fuad Hasanov, Paolo Mauro, and Junhyung Park
Introduction 213
Data, Sample Selection, and Methodology 216
Descriptive Analysis 219
Regression Analysis 232
Conclusion 241
Appendix 8A: Data Issues and Cyclical Adjustment 243
Appendix 8B: Timeline for European Monetary Integration (1990–2009) 245
Notes 246
CHAPTER 9 Conclusion 249
Key Findings: What Failed and What Worked in Past Attempts at Fiscal Adjustment 251
Implications for Planned Adjustments 255
Notes 258
References 259
About the Project Team 267
Index 271
