Ensuring Fiscal Sustainability in G-7 Countries

Daniel Leigh, David Hauner and Michael Skaarup

No 2007/187, IMF Working Papers from International Monetary Fund

Abstract: Rising longevity, falling fertility rates, and the retirement of the baby boom generation will substantially raise age-related government spending in most advanced and many emerging market countries. This paper assesses the evolution of fiscal sustainability for each of the G-7 countries using two standard primary gap indicators. The estimated fiscal adjustment required to ensure long-run fiscal sustainability is substantial for all G-7 countries. In particular, ensuring fiscal sustainability would require an average improvement in the primary balance of about 4 percentage points of GDP. While the overall adjustment required to achieve long-run fiscal sustainability in G-7 countries is large, there are significant growth benefits to putting public finances on a sustainable footing in the near term versus delayed adjustment.

Keywords: WP; debt; GDP; debt target; debt-target indicator (search for similar items in EconPapers)
Pages: 29
Date: 2007-07-01
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Citations: View citations in EconPapers (17)

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