Fiscal Consolidation in Israel : A Global Fiscal Model Perspective

Author/Editor:

Natan P. Epstein ; Selim Elekdag ; Marialuz Moreno Badia

Publication Date:

November 1, 2006

Electronic Access:

Free Full text (PDF file size is 552 KB).Use the free Adobe Acrobat Reader to view this PDF file

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:

Fiscal consolidation has become an important policy prescription for many emerging market countries (EMCs), particularly for the highly indebted ones. Although prudent fiscal policies tend to reduce vulnerabilities, their implementation is usually postponed. This paper represents, to the best of our knowledge, one of the first attempts in the literature to quantify the costs of delaying fiscal consolidation in an EMC. In particular, using the IMF's Global Fiscal Model (GFM), we find that early consolidation through expenditure cuts would result in a substantial increase in Israel's long-term output growth relative to the case with delayed fiscal adjustment. Using an alternative fiscal instrument, we find that delaying tax cuts would result in cumulative real GDP that is much larger than otherwise.

Series:

Working Paper No. 06/253

Subject:

English

Publication Date:

November 1, 2006

ISBN/ISSN:

9781451865134/1018-5941

Stock No:

WPIEA2006253

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

31

Please address any questions about this title to publications@imf.org