The New Medium-Term Budgetary Objectives and the Problem of Fiscal Sustainability after the Crisis

Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 8

32 Pages Posted: 25 Oct 2010

See all articles by Paolo Biraschi

Paolo Biraschi

Government of the Italian Republic (Italy) - Department of the Treasury

Marco Cacciotti

Government of the Italian Republic (Italy) - Ministry of Economy and Finance - Department of the Treasury

Davide Iacovoni

affiliation not provided to SSRN

Juan Pradelli

Consip SPA

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2010

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, Debt, Policy Objectives, Fiscal Policy, Comparative Analysis

JEL Classification: H6, E61, E62, E63

Suggested Citation

Biraschi, Paolo and Cacciotti, Marco and Iacovoni, Davide and Pradelli, Juan, The New Medium-Term Budgetary Objectives and the Problem of Fiscal Sustainability after the Crisis (October 1, 2010). Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 8, Available at SSRN: https://ssrn.com/abstract=1697505 or http://dx.doi.org/10.2139/ssrn.1697505

Paolo Biraschi (Contact Author)

Government of the Italian Republic (Italy) - Department of the Treasury ( email )

Via XX Settembre, 97
Rome, 00187
Italy

Marco Cacciotti

Government of the Italian Republic (Italy) - Ministry of Economy and Finance - Department of the Treasury ( email )

Via XX Settembre 97
Rome, Rome 00187
Italy
06 4761 8339 (Phone)

Davide Iacovoni

affiliation not provided to SSRN ( email )

Juan Pradelli

Consip SPA ( email )

Direzione Acquisti in Rete della Pubblica Amminist
Via Isonzo, 19/E
00198 Roma
Italy

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