Fiscal surplus allows countries to withstand economic crisis, says OECD

7 Nov 15

Policies that strengthen public finances and enable countries to run a fiscal surplus are critical to their ability to weather economic crises, the OECD has said.

In a comparison of OECD countries over the period 2007-15, the group found that those with the right policy tools, such as Germany and Switzerland’s ‘debt brake rules’ that limit expenditure during both boom and recession periods, were able to run a budget surplus in 2007 and are in a much better post-crisis position as a result.  

The State of Public Finances 2015 report says the “health of each country’s fiscal position at the outset of the crisis strongly determines its current fiscal position”.

While the debt position worsened for all but three OECD countries in the wake of the financial crisis, those who were running a surplus at the time, such as Iceland or Estonia, have no significant deficit reduction needs today.

Those with very high deficits today, such as the United States, were running fiscal deficits in 2007.

The report found that simple and clear fiscal anchors were much more effective at managing public money than complex and hard-to enforce-provisions such as the EU’s Stability and Growth Pact ‒ a set of rules to ensure EU countries have sound public finances.

Independent fiscal institutions also have a role to play in improving fiscal forecasting and could be effective in working towards sound policy choices, the report said. 

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