Fiscal ceilings and targets for an MTEF

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Presentation transcript:

Fiscal ceilings and targets for an MTEF Allan Gustafsson Seoul, March 16, 2004

What ceilings and targets? Budget balance Public debt Size of total budget

Why a ceiling on the total budget? Process Dead-weight loss of taxation Diminishing tax returns Inefficient administrative allocation Sustainability Laffer curve Dead-weight loss Marginal tax rate

Institutional coverage General government? Central government? Special accounts Statutory funds? Definition? GFS

What flow to cap? Tr T a x e s Borrowing Fees etc Loans Appr. Payments /

What outlays / costs? Discretionary spending? Mandatory spending? Social security? Interest? Externally funded spending?

Measure Cash? (Modified cash?) Accrual?

Scale Nominal terms? Real terms? In proportion to GNP / GNI?

Update Fixed period? Rolling?

Time horizon 3 year? 5 year? Longer?

Level? Economic arguments Political arguments Laffer curve Dead-weight loss Marginal tax rate

Nominal GNI and gov’t spending

Public spending as share of GNI

Firmness Definitive / indicative? Escape clause?

Budget margin External shocks? New inititatives? Size?

Why a limit on public debt? Accelerating costs Vulnerability Inter-generational fairness

Public debt Gross financial? Net financial? Net worth?

Level Long-term net worth = 0 Medium-term +/-

Budget balance Upper boundary budget balance -4,00% -3,00% -2,00% -1,00% 0,00% 1,00% 2,00% 3,00% 4,00% 5,00% 6,00% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 Upper boundary budget balance Desired long-term trend budget balance Business cycle adjusted budget balance – ex post Lower boundary budget balance Stability pact floor

Thank you!