OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
- ISSN : 18151973 (en ligne)
- https://doi.org/10.1787/18151973
The Political Economy of Delaying Fiscal Consolidation
Over the next decades, many OECD countries are anticipating large increases in public spending as a
result of population ageing and other long-term structural trends. The need to put public finances on a
sustainable footing is widely recognised, but progress has been uneven and slow. Some policy makers may
feel that action can be deferred for a few years at little cost because of the long-term nature of the problem.
This paper questions this perception by proposing a model of the political costs of consolidating public
finances. The main finding is that even a short delay increases political cost of consolidation quite
markedly when ultimately policy makers are facing a deadline by which sustainability must be restored.
The conclusion is very robust to changes in assumptions and specification. A variant of the model shows
that with an infinite horizon the incentive to consolidate is weaker, which highlights the importance of
setting a deadline.
This paper relates to the 2007 Economic Survey of the Euro area (www.oecd.org/eco/surveys/euroarea).
Mots-clés: political economy, fiscal consolidation, structural adjustment, public finances, population ageing
JEL:
E62: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Fiscal Policy;
D72: Microeconomics / Analysis of Collective Decision-Making / Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
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