�The New Medium-Term Budgetary Objectives and the Problem of Fiscal Sustainability After the Crisis.�

Biraschi Paolo, Marco Cacciotti, Davide Iacovoni and Juan Pradelli

Working Papers from Department of the Treasury, Ministry of the Economy and of Finance

Abstract: The paper analyses the medium-term objectives (MTOs) recently adopted by the EU Member States as a reference for the multilateral budgetary surveillance, assessing the ability of the new MTOs to promote long-term fiscal sustainability. The paper calibrates the (yet undisclosed) algorithm for computing the minimum budgetary targets that EU countries can declare as MTO and discusses two novel features of the algorithm: a supplementary debt-reduction effort requested from high-debt countries, and the partial frontloading of the expected future increases in age-related expenditure -the cost of ageing-. The paper evaluates the impact of the crisis on EU countries? current as well as future MTOs through the channels of higher public debt, lower growth potential, and higher cost of ageing. On the basis of alternative scenarios for macroeconomic and budgetary conditions as of 2012 -when the next revision of MTOs is scheduled-, the paper concludes that prospective MTOs would be more stringent than the current ones. Therefore, a path for gradual fiscal tightening is already embedded into the European fiscal framework and should be considered when discussing exit strategies. Finally, an alternative indicator linking MTOs to the current fiscal and financial imbalances is presented.

Keywords: National Budget; Deficit; and Debt; policy objectives; fiscal policy; comparative analysis (search for similar items in EconPapers)
JEL-codes: E61 E62 E63 H6 (search for similar items in EconPapers)
Pages: 32
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