Drawing from the analysis reported in recent editions of the OECD Economic Outlook (June and December 2009), this note summarises the OECD assessment of fiscal policy developments after the crisis.
Many governments are already preparing exit strategies to ensure longer-term fiscal sustainability. OECD projections suggest that countries should be in a position to begin to withdraw fiscal support by 2011 at a pace that is contingent on the recovery and the state of public finances, as well as on the scope for monetary policy to provide support to the economy, if needed.
Source: OECD Economic Outlook database. (Download the Excel file)
Fiscal consolidation should privilege growth-friendly instruments as much as possible. While expenditure cuts are needed, fiscal retrenchment should preserve pro-growth programmes, and there is much scope for making government spending more efficient in many countries. Tax hikes should rely on the least growth-distorting instruments, such as taxes on immobile bases. There could also be greater recourse to green revenue, including receipts from green taxes and carbon trading, which would yield a double dividend of contributing to fiscal consolidation and encouraging green growth.