Long-Term Fiscal Sustainability in Advanced Economies

Asia & the Pacific Policy Studies, Volume 3, Issue 2, Pages 142-154, May 2016

Crawford School of Public Policy, The Australian National University

13 Pages Posted: 8 Jul 2016

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: June 11, 2016

Abstract

With the Great Recession leaving nearly all advanced economies with substantially higher debt–gross domestic product ratios, this paper re-evaluates the long-term fiscal sustainability of these economies based on current estimates of their current-policy fiscal trajectories. Through measuring fiscal imbalance, we find that for many countries, short-term fiscal measures such as the debt–gross domestic product ratio and current budget deficits as a share of gross domestic product bear little relationship to the sustainability of policy. The longer-term challenges these countries face are related much more to the future fiscal challenge of growing primary deficits, associated with the cost of providing pensions and health care in the face of growing old-age dependency ratios. While focusing on managing the short-term debt burden may help avoid crises like the one being played out in Greece, attention and policy actions must eventually turn to the longer-term fiscal problem.

Keywords: Fiscal Policy, Intergenerational, Economic Policy

Suggested Citation

Auerbach, Alan Jeffrey, Long-Term Fiscal Sustainability in Advanced Economies (June 11, 2016). Asia & the Pacific Policy Studies, Volume 3, Issue 2, Pages 142-154, May 2016; Crawford School of Public Policy, The Australian National University. Available at SSRN: https://ssrn.com/abstract=2805768

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
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United States
510-643-0711 (Phone)
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National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Germany

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