Research Catalog

Title

Restoring Fiscal Sustainability in the Euro Area [electronic resource]: Raise Taxes or Curb Spending? / Boris Cournède and Frédéric Gonand

Author

Cournède, Boris.

Publication

Paris : OECD Publishing, 2006.

Details

Additional Authors

Gonand, Frédéric.

Description

40 p.; 21 x 29.7cm.

Summary

With population ageing, fiscal consolidation has become of paramount importance for euro area countries. Consolidation can be pursued in various ways, with different effects on potential growth, which itself will be dragged down by ageing. A dynamic general equilibrium model with overlapping generations and a public finance block (including a pay-as-you-go pension regime, a health care system, non ageingrelated public spending and a stock of debt to be repaid) is used to compare the macroeconomic impact of four scenarios: a) increasing taxes to finance unchanged pensions and repay public debt, b) lowering future pension replacement rates and repaying public debt through a lower ratio of non ageing-related outlays to GDP, c) raising the retirement age by 1.25 years per decade and increasing taxes only to pay off debt, and d) increasing the retirement age by 1.25 years per decade and paying off debt through a lower ratio of non ageing-related expenditure to GDP. This last scenario is the one where growth is strongest: with gradual increases in the retirement age and spending restraint, average GDP growth in the 2010s would be 0.34 percentage point stronger than in a scenario where fiscal consolidation is achieved exclusively through tax hikes. The appropriate conclusion from the model is not that public spending is bad per se, but that cuts to lower-priority spending items can deliver surprisingly large income gains compared with the alternative of raising taxes.

Series Statement

OECD Economics Department Working Papers, 1815-1973 ; no.520

Uniform Title

OECD Economics Department Working Papers, no.520.

Subject

• Economics
• Euro Area

LCCN

10.1787/414711615127

OCLC

oecd-lib

Author

Cournède, Boris.

Title

Restoring Fiscal Sustainability in the Euro Area [electronic resource]: Raise Taxes or Curb Spending? / Boris Cournède and Frédéric Gonand

Imprint

Paris : OECD Publishing, 2006.

Series

OECD Economics Department Working Papers, 1815-1973 ; no.520

OECD Economics Department Working Papers, 1815-1973 ; no.520.

Connect to:

Full text online available onsite at NYPL

Indexed Term

Economics

Euro Area

Added Author

Gonand, Frédéric.

Other Standard Identifier

10.1787/414711615127 doi