Ensuring Fiscal Sustainability in G-7 Countries

Author/Editor:

Daniel Leigh ; David Hauner ; Michael Skaarup

Publication Date:

July 1, 2007

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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. This 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. In particular, ensuring fiscal sustainability would require an average improvement in the primary balance of about 4 percentage points of GDP. While the overall adjustment required to achieve long-run fiscal sustainability in G-7 countries is large, there are significant growth benefits to putting public finances on a sustainable footing in the near term versus delayed adjustment.

Series:

Working Paper No. 2007/187

Subject:

Aging Expenditure Fiscal stance Fiscal sustainability Public debt

English

Publication Date:

July 1, 2007

ISBN/ISSN:

9781451867510/1018-5941

Stock No:

WPIEA2007187

Pages:

29

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