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July 2017

July 14, 2017

Stressing the Public Finances – the UK Raises the Bar


Posted By Vitor Gaspar and Jason Harris[1]

Of all the major economies hit by the turbulent events of the global financial crisis, few were hit as hard and by as large a range of shocks as the United Kingdom. 

A housing bust, banking failures amid widespread financial market meltdown, and a large and persistent decline in output all played havoc with the public finances. The deficit blew out to 10 percent of GDP, government debt more than doubled to 89 percent of GDP, and the state’s balance sheet ballooned after the bailouts of some of the country’s largest commercial banks. Yet, prior to the crisis, the fiscal risks that became reality with such dire consequences had only been loosely considered.

Taking a big step forward in recognizing and managing future risks, the UK’s Independent Office of Budget Responsibility (OBR) has released its first Fiscal Risks Report. This landmark document identifies, quantifies and provides an estimated likelihood of the risks to which the UK public finances are exposed, including:

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July 11, 2017

The Future of Government Fiscal Reporting

For delphine blog

Post by Delphine Moretti[1]

In March 2017, the Organisation for Economic Cooperation and Development (OECD) organised the 17th Annual Meeting of the OECD network of Senior Financial Management Officials. The meeting was attended by around 120 delegates from OECD member countries, the European Commission, the International Monetary Fund (IMF), the World Bank Group (WBG) and international standards setters, such as the International Public Sector Accounting Standards Board (IPSASB).

The meeting discussed progress with accounting reforms in OECD member countries and the related modernisation of financial management. The participants discussed how “modern” financial management entails not only producing more complete and reliable financial data, but also making these data publicly available in fiscal reports that are transparent, clear, and useful.

The discussion, and recent OECD Surveys, highlight that, in the wake of the financial crisis, there has been a greater emphasis on budget discipline and transparency. This has led to significant changes in fiscal reporting practices in OECD countries, including:

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July 05, 2017

Politics and Budgets


Post by Vitor Gaspar, Sanjeev Gupta and Carlos Mulas-Granados [1]

Every year, parliaments in democratic countries discuss budget proposals for the following year to set the course for economic policy going forward. But the reality is that politics and budgets are deeply interwoven. This was recognized by Joseph Schumpeter who noted “the spirit of a people, its cultural level, its social structure, the deeds its policy may prepare – all this and more is written in its fiscal history”. The crucial role of politics in economic decision making was also acknowledged by the leading American political scientist Harold Laswell when he said that politics is “the matter of who gets what, when and how”.

We delve deeper into the political economy of fiscal policy in a recent IMF book, “Fiscal Politics”. This book uses a new dataset that combines political and economic variables for over 90 countries—advanced as well as emerging and developing--spanning four decades. We find that proximity of elections and political divisions (for example, as reflected in thin parliamentary majority) are key to influencing policymakers conduct in formulating and implementing fiscal policy. That is, these two considerations determine the size and the composition of public budgets. Political ideology (whether the government has a left or right orientation), while important, is not as decisive, despite rhetorical disputes between political groups on opposite sides of the aisle in almost every country.

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