{
  "title": "The Cost of Future Policy: Intertemporal Public Sector Balance Sheets in the G7",
  "publication": "IMF Working Papers, May 6, 2021",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2021/05/06/the-cost-of-future-policy-intertemporal-public-sector-balance-sheets-in-the-g7-50216",
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  "summary": "This paper compiles the Intertemporal Public Sector Balance Sheets for all G7 countries and examines their relationship with government borrowing costs. In 2018, all G7 countries have negative Intertemporal Net Financial Worth (INFW), falling short of their intertemporal budget constraint.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Authors: Yugo Koshima, Jason Harris, Alexander F. Tieman, Alessandro De Sanctis\n- Publication: IMF Working Papers, Working Paper No. 2021/128\n- Date: May 6, 2021\n- Pages: 48\n- DOI: https://doi.org/10.5089/9781513573335.001\n- ISBN: 9781513573335\n- ISSN: 1018-5941\n- Subject areas: Expenditure; Financial statements; Fiscal policy; Fiscal stance; Health care spending; Pension spending; Public financial management (PFM)"
    },
    {
      "heading": "Core findings",
      "content": "- The paper compiles the Intertemporal Public Sector Balance Sheets for all G7 countries and examines their relationship with government borrowing costs.\n- In 2018, all G7 countries have negative Intertemporal Net Financial Worth (INFW), falling short of their intertemporal budget constraint.\n- A decomposition of the evolution of INFW shows:\n  - Short-term fluctuations are mainly driven by fiscal policy changes.\n  - In the long run, demographic changes and health and pension obligations play a larger role.\n- Estimated market effect:\n  - On average, a 10 percentage point of GDP increase in INFW reduces the (future) 10-1 year sovereign yield curve spread by 2.8 basis points.\n- Interpretation:\n  - These results suggest that financial markets pay attention to governments’ future policy obligations, in addition to its current assets and liabilities."
    },
    {
      "heading": "Analysis and interpretation",
      "content": "- Balance sheet framework applied across G7 to quantify intertemporal positions and policy-driven dynamics.\n- Evolution decomposition separates cyclical/fiscal policy drivers from structural, long-term drivers such as demographics, health care spending, and pension spending.\n- Empirical link established between INFW improvements and lower future sovereign yield curve spreads, implying a measurable market premium for intertemporal fiscal health."
    },
    {
      "heading": "Policy implications",
      "content": "- Monitoring Intertemporal Net Financial Worth (INFW) provides additional signals beyond conventional fiscal indicators for assessing government borrowing costs.\n- Short-term fiscal policy choices materially affect INFW fluctuations and thus can influence borrowing costs via market perceptions.\n- Long-term pressures from demographic change and health and pension obligations warrant policy attention to improve intertemporal fiscal positions and potentially reduce sovereign borrowing costs.\n\nIMF Working Paper No. 2021/128 — \"The Cost of Future Policy: Intertemporal Public Sector Balance Sheets in the G7\", Yugo Koshima, Jason Harris, Alexander F. Tieman, Alessandro De Sanctis, May 6, 2021.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2021/05/06/the-cost-of-future-policy-intertemporal-public-sector-balance-sheets-in-the-g7-50216"
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    "Authors: Yugo Koshima, Jason Harris, Alexander F. Tieman, Alessandro De Sanctis",
    "Published: May 6, 2021",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513573335.001",
    "Authors: Yugo Koshima, Jason Harris, Alexander F. Tieman, Alessandro De Sanctis",
    "Publication: IMF Working Papers, Working Paper No. 2021/128",
    "Date: May 6, 2021",
    "Pages: 48",
    "DOI: https://doi.org/10.5089/9781513573335.001",
    "ISBN: 9781513573335",
    "ISSN: 1018-5941",
    "Subject areas: Expenditure; Financial statements; Fiscal policy; Fiscal stance; Health care spending; Pension spending; Public financial management (PFM)",
    "The paper compiles the Intertemporal Public Sector Balance Sheets for all G7 countries and examines their relationship with government borrowing costs.",
    "In 2018, all G7 countries have negative Intertemporal Net Financial Worth (INFW), falling short of their intertemporal budget constraint.",
    "A decomposition of the evolution of INFW shows:",
    "Estimated market effect:",
    "Interpretation:",
    "Balance sheet framework applied across G7 to quantify intertemporal positions and policy-driven dynamics.",
    "Evolution decomposition separates cyclical/fiscal policy drivers from structural, long-term drivers such as demographics, health care spending, and pension spending.",
    "Empirical link established between INFW improvements and lower future sovereign yield curve spreads, implying a measurable market premium for intertemporal fiscal health.",
    "Monitoring Intertemporal Net Financial Worth (INFW) provides additional signals beyond conventional fiscal indicators for assessing government borrowing costs.",
    "Short-term fiscal policy choices materially affect INFW fluctuations and thus can influence borrowing costs via market perceptions.",
    "Long-term pressures from demographic change and health and pension obligations warrant policy attention to improve intertemporal fiscal positions and potentially reduce sovereign borrowing costs.",
    "**Working Paper**"
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