Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192481 
Authors: 
Year of Publication: 
2007
Series/Report no.: 
Discussion Papers No. 499
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
Assessments of fiscal sustainability (FS) problems should be based on present values of government revenues and expenditures over an infinite horizon. The paper shows that realistic assumptions imply that the growth rate of government expenditure components may exceed both the steady state growth rate of the economy and the relevant discount rate, which makes the FS problem immeasurably large. The common practice of ad hoc exogenous alignment of government expenditures to the steady state growth path after some distant year may significantly diminish the FS problem, since the effective discounting is likely to remain low. Low effective discounting also makes the FS assessment highly non-robust, reducing its political relevance. It suggests that the fiscal sustainability should be improved by reducing the growth rates of government expenditures, a strategy followed in e.g. the Swedish pension reform.
Subjects: 
Fiscal sustainability
long run projections
discounting
JEL: 
H30
H55
H62
Document Type: 
Working Paper

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