The financial crisis and economic downturn are going to weigh on fiscal positions in OECD countries over
the short to medium-term, both through the operation of automatic stabilisers and the enactment of
discretionary fiscal stimulus packages. However, the strategic policy options facing OECD countries are
mainly determined by the soundness of their underlying fiscal positions which vary substantially. This
paper first describes how OECD economies are situated with respect to underlying fiscal balances and net
government debt. A number of countries seem to enjoy favourable fiscal positions with underlying fiscal
surpluses, low government debt or even positive net financial asset positions. When taking account, as far
as possible, of implicit liabilities associated with ageing populations and resource-based revenues, fiscal
positions still vary greatly across countries. The paper then examines the criteria involved in deciding
whether government financial asset accumulation is in excess of needs and the use to which any excess
government saving might be put, whether increasing public spending or reducing taxes. Finally, the
determinants of the optimal size of the government balance sheet for any given desired net debt position
are discussed.
