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The sustainability of fiscal policy: New answers to an old question
Olivier Blanchard, Jean-Claude Chouraqui, Robert P. Hagemann and Nicola Sartor
Sustainability of fiscal policy is traditionally assessed by projecting the ratio of public debt to GNP taking into account expected budgetary developments. In the same spirit, the paper presents an indicator of sustainability to illustrate how much change in government spending and/or taxation should be made to assure that the ratio of public debt to GNP remains unchanged. Using this new indicator, the paper appraises the degree to which current fiscal policies are sustainable in a sample of OECD countries over short, medium, and long-term horizons.
Industrial subsidies in the OECD economies
Robert Ford and Wim Suyker
Subsidisation of industrial activities distorts the allocation of scarce resources, is a burden on government finances and generates friction in international trade. This paper draws on a wide range of data sources to examine industrial subsidisation in OECD countries. The sectoral distribution of subsidies and the relative importance of the different instruments of subsidisation are highlighted. The final section of the paper evaluates, to the extent possible, the economic effects of subsidy policy.
Progressivity of income tax systems
John Norregaard
This article summarises the background and content of a new OECD data base on the personal income tax and indicates a number of areas in which these new data can be applied. It also reviews the different measures of progressivity of personal income tax and describes the different aspects of tax progressivity reflected by the different measures. Finally, it presents and discusses estimates of income tax progressivity in most OECD countries.
Portfolio effects and the position of the dollar in exchange markets
Bixio Barenco
The article derives the "spontaneous" demand for new dollar assets arising from the growth of global private portfolios which is compared with the "exogenous" supply of such assets. This simplified flow approach suggests that the growth of global portfolios could continue to translate into an important demand for new dollar assets, albeit not sufficient to fully cover the expected financing need. Whether this would require higher expected returns on dollar assets relative to assets denominated in other currencies will largely depend on spontaneous portfolio diversification. While in the near future this process could remain favourable to the dollar, over the longer term - as financial markets outside the United States increase their breadth and depth - it could become less supportive of this currency.
Monetary policy in liberalised financial markets
Adrian Blundell-Wignall, Frank Browne and Paolo Manasse
Rapid progress in financial market deregulation and innovation has occurred in most large OECD economies since the early 1970s. One important consequence of this has been enhanced competition and improvements in the allocative efficiency of financial markets. However, transitional costs (higher inflation and balance-of-payments difficulties) have also been encountered by many economies. At the same time, the process of financial liberalisation has been accompanied by new and longer-run challenges for monetary policy. Thus, liquidity constraints have been reduced, enabling expenditure decisions to be based more on expected wealth and relative prices, implying new transmission mechanisms for monetary policy. The importance of monetary aggregates as an indicator for monetary policy have been one casualty of this development, while the role of financial prices has increased.
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