Fiscal Consolidation in Israel: A Global Fiscal Model Perspective
IMF Working Papers, November 1, 2006
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- Fiscal Consolidation in Israel: A Global Fiscal Model Perspective
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Bibliographic details
- Authors: Natan P. Epstein, Selim A Elekdag, Marialuz Moreno Badia
- Published: November 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451865134.001
Summary
- Fiscal consolidation is an important policy prescription for many emerging market countries (EMCs), particularly for the highly indebted ones.
- This paper represents, to the best of the authors' knowledge, one of the first attempts in the literature to quantify the costs of delaying fiscal consolidation in an EMC.
- The analysis uses the IMF's Global Fiscal Model (GFM).
Major findings
- 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, the authors find that delaying tax cuts would result in cumulative real GDP that is much larger than otherwise.
Methodology and scope
- Model used: IMF's Global Fiscal Model (GFM).
- Focus: Quantifying costs of delaying fiscal consolidation in an emerging market context, with Israel as the case study.
Policy implications
- Prudent fiscal policies reduce vulnerabilities, but implementation is often postponed.
- The results underscore that timing and choice of fiscal instruments (expenditure cuts versus tax cuts) materially affect long-term output and cumulative real GDP outcomes.
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- _wp06253 - References