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

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

3. 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

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

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

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

7. Measure
Cash?
(Modified cash?)
Accrual?

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

9. Update
Fixed period?
Rolling?

10. Time horizon
3 year?
5 year?
Longer?

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

12. Nominal GNI and gov’t spending

13. Public spending as share of GNI

14. Firmness
Definitive / indicative?
Escape clause?

15. Budget margin
External shocks?
New inititatives?
Size?

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

17. Public debt
Gross financial?
Net financial?
Net worth?

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

19. 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

20. Thank you!