Ensuring Fiscal Sustainability in G-7 Countries

IMF Working Papers, July 1, 2007

Source details

Rising longevity, falling fertility rates, and the retirement of the baby boom generation will substantially raise age-related government spending in most advanced and many emerging market countries.
The paper assesses the evolution of fiscal sustainability for each of the G-7 countries using two standard primary gap indicators.
The estimated fiscal adjustment required to ensure long-run fiscal sustainability is substantial for all G-7 countries.
Ensuring fiscal sustainability would require an average improvement in the primary balance of about 4 percentage points of GDP.
There are significant growth benefits to putting public finances on a sustainable footing in the near term versus delayed adjustment.

The study uses two standard primary gap indicators to assess fiscal sustainability across the G-7.
The average fiscal adjustment needed across G-7 countries is about 4 percentage points of GDP in the primary balance.
The paper emphasizes that required adjustments are substantial for each G-7 country (no per-country numeric breakdown provided on the landing page).

Advance near-term fiscal consolidation to secure long-run fiscal sustainability and capture significant growth benefits relative to delayed adjustment.
Focus policies on managing age-related government spending pressures arising from demographic shifts (rising longevity, falling fertility, retirement of baby boom generation).
Use primary balance improvement as a target metric to gauge necessary fiscal adjustments.

Fiscal sustainability is evaluated using two standard primary gap indicators (the landing page identifies the indicators but does not detail them).
The analysis is presented for each of the G-7 countries.

Ensuring Fiscal Sustainability in G-7 Countries, Daniel Leigh, David Hauner, Michael Skaarup, IMF Working Paper No. 2007/187 (July 1, 2007).