Fiscal Monitor

Front Matter

Chapter 1: Recent Fiscal Developments and Outlook
A moderate recovery continues in advanced economies, due to lower oil prices, continued accommodative monetary policy, and more moderate fiscal adjustment. However, high public and private debt levels continue to pose headwinds to growth and debt sustainability in some advanced economies. In addition, inflation is below target by a large margin in many countries, making the task of reducing high public debt levels more difficult. Growth in emerging economies is softening and financial and exchange rate volatility has increased public financing costs for some of them. Meanwhile, sharply lower oil and commodity revenues have created challenges for exporting countries. In this challenging environment, fiscal policy continues to play an essential role in building confidence and, where appropriate, sustaining aggregate demand. This chapter of the Fiscal Monitor emphasizes that strengthening fiscal frameworks—particularly to manage public finance risks and ensure debt sustainability—must be part of the fiscal policy response. Countries should seize the moment created by lower oil prices to start the process of energy taxation and energy subsidy reform.

Chapter 2: Can Fiscal Policy Stabilize Output?
As interest rates close to their lower bound limit the ability of monetary policy to smooth fluctuations in economic activity, this chapter of the Fiscal Monitor looks into how fiscal policy can do so. The two main findings are that fiscal policy is often used to reduce output volatility, especially in advanced economies, and that the more stable macroeconomic environment that results is in turn conducive to higher average growth. Automatic stabilizers alone (mainly tax payments and social transfers) can contribute substantially to output stabilization. Yet policymakers rarely let them operate freely as revenue windfalls due to stronger growth tend to be spent, raising deficits and public debts. Stability and growth would both benefit greatly if procyclical fiscal measures were avoided. The chapter also explores options to enhance automatic stabilizers without unduly raising marginal income tax rates or the generosity of social transfers.

Methodological and Statistical Appendix

Back Matter