Recent fiscal policy in selected industrial countries
BIS Working Papers No 162
This paper summarises fiscal developments over the past 10 years in 16 industrial countries, based on OECD data and projections. Several countries that had substantial fiscal deficits early in the 1990s turned to surpluses by the year 2000, with some countries improving their fiscal balances by 5% of GDP or more, even abstracting from the effects of strong economic growth. But in many countries - especially the largest economies - this strong performance had given way to the reappearance of large fiscal deficits by 2003. Based on current fiscal legislation, the OECD expects to see no clear improvement in cyclically adjusted balances by 2005. All countries' fiscal positions in 2003 were worse than had been expected in late 2000, but after abstracting from the effects of a surprisingly weak economy, the negative surprise was largest for the United States, followed by the United Kingdom and Ireland. Sustainability calculations suggest that preventing rising net debt ratios requires a fiscal adjustment of some 7% of GDP in Japan, 2½ to 3% of GDP in the United States, 1½% of GDP in the United Kingdom, and about 1% of GDP in France and Germany. Italy's fiscal position is strong enough to stabilise the debt ratio at its current high level, but not strong enough to bring the debt ratio down appreciably.