Toward A Balanced Fiscal Policy for Israel in the Post-COVID Era

Manuel Trajtenberg and Itamar Popliker

Israel Economic Review, 2022, vol. 20, issue 1, 95-137

Abstract: This article proposes a new fiscal policy for the post-COVID-19 era, intended to balance fiscal discipline and appropriate solutions to the needs of Israeli society. The proposed framework establishes two targets: the debt-to-GDP ratio and the public expenditure-to-GDP ratio, which the government will set at the beginning of its term. The budget will be determined each year based on these targets, in order to ensure their achievement within a defined period of time. These targets will be injected into two new equations, one for total expenditure and the other for the annual deficit, which will be used to derive the size of the annual budget and the tax burden. Prior to the crisis, the ratio of public expenditure to GDP was about 40 percent in Israel versus 41.8 percent in the OECD and 49.1 percent in the reference countries. We believe there is a need to raise the public expenditure-to-GDP ratio target, in view of the prolonged decline in the level of basic public services, and also in view of the needs that have arisen as a result of the pandemic, while at the same time maintaining a responsible debt-to-GDP ratio that is in accord with the global economic environment.

Date: 2022
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