Long-term fiscal projections describe spending, revenue, fiscal balance, and public debt trends based on current policy settings, recent history, and likely long-term developments in key areas. They provide decision-makers with tools to assess the long-term impacts of policy options. Despite their importance, the Israeli Ministry of Finance does not regularly conduct and publish long-term fiscal projections. This is in contrast with most OECD countries. The absence of such projections limits the ability of the Israeli Ministry of Finance to reflect long-term implications of economic decisions (or the avoidance of making ones) to policymakers, which is crucial for evidence-based policymaking, tackling structural challenges and ensuring that the government would be able to continue servicing its debts without unrealistically sudden corrections to the balance of income and expenditure.
To help the Ministry of Finance’s Budget Department tackle this knowledge gap, the OECD has analysed the main trends affecting the volume of public expenditures in the long run and developed a model that examines the impact of these trends on government spending and the fiscal aggregates under different policy scenarios. The model relies on the OECD work on long-run economic and fiscal projections and the OECD Long-Term Model, with necessary adjustments to include Israeli-specific trends. This report presents the results of this work.
The report is divided into two chapters:
Chapter 1 provides the context and rationale for the work, highlighting the main fiscal challenges faced by Israel, the approach developed by the OECD to model long-term expenditures in Israel and the main results of the modelling exercise. The model results are discussed in light of recent OECD recommendations for addressing fiscal challenges in Israel.
Chapter 2 presents in details how the vectors informing the model have been designed and introduces additional scenarios evaluating the long-term impact of potential policy modifications.