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The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic survey of the United States, published on 29 May 2007.
Despite a sharp housing market correction, overall growth has been holding up fairly well. Strong foreign demand and a decline in import growth have slowed the rise in the external deficit. With activity near capacity limits, some inflationary pressures have emerged. Reining them in without stifling growth is the main challenge for monetary policy. Looking further ahead, the key challenges are to sustain healthy growth and ensure fiscal sustainability in the face of population ageing. Against this backdrop, the Survey focuses on the following issues:
Enhancing the economy’s growth potential. Trend growth is slowing because labour productivity gains, though remaining high, no longer suffice to compensate for the deceleration in potential employment due mainly to demographic factors. Prospects for productivity growth appear favourable, but further efficiency gains could be achieved by tackling unfinished business in the area of structural reform. Labour supply could be boosted by increasing work incentives for the disabled, raising the earned income tax credit and delaying retirement eligibility.
Ensuring fiscal sustainability and reforming taxation. The federal budget deficit has narrowed, but eliminating it requires increased spending discipline. In this context, reinstating expired statutory budget enforcement rules would be helpful. The reform of entitlement programmes, which will come under increasing pressure from population ageing and medical cost increases, is essential to ensure fiscal sustainability in the longer run. On the revenue side, priority should be given to reforms that would broaden the tax base by reducing tax preferences, but consideration should also be given to consumption based indirect taxes.
Reconsidering housing support. Direct and indirect support to homeownership may have led to higher house prices, and thus to increased borrowing by housholds. Tax preferences are costly and may create distortions, mostly benefiting high income households that have easy access to homeownership anyway, and should be reformed over time. The regulation of government sponsored enterprises needs to be tightened, as their activities have developed beyond their original mandate and pose a risk to financial stability, and their role should be refocused on their initial objective of promoting home ownership.
Improving primary and secondary education. US school students are outperformed in international tests by their peers in many other countries. Although the causes of this are unclear, a partial explanation is that decentralised standards, curriculum and examinations are undemanding. Federal legislation that aims at addressing such system weaknesses is in general well conceived. However, it could be strengthened, for instance by extending the legislated framework of standards, assessment and accountability through high school. Responsibility for education lies primarily with the states and local authorities, which have to adopt and implement more challenging standards.
Facilitating access to higher education. Despite shortcomings through the secondary level, the higher education system is generally performing well. However, one problem is that many potential students cannot afford to enrol. Policymakers have proposed addressing this by increasing student grants. Arguably, a more cost effective, efficient and equitable means of reducing barriers to access would be to promote income contingent student loans. Raising student loan limits would help students and promote access at little cost to the taxpayer.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of the United States 2007 is available from:
For further information please contact the US Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Hannes Suppanz and Peter Tulip under the supervision of Patrick Lenain.