If You Want to Cut, Cut, Don't Talk: The Role of Formal Targets in Israel's Fiscal Consolidation Efforts 1985-2008. Adi Brender Research Department, Bank of Israel. IMF Conference: Fiscal Rules for Israel. Background.
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Research Department, Bank of Israel
IMF Conference: Fiscal Rules for Israel
Policy-makers need to confront interest groups on specific budget items.
Setting macro-fiscal targets leaves the “real battle” - approving and implementing the required measures - to future policy-makers.
Examine 4 sub-periods separately: :
Despite a decade of declining deficit targets, the target for 2003 was similar to that of 1993.
Consequently – to gain market confidence:
1 for 2003 was similar to that of 1993.All the scenarios assumed the same interest rate and 4 percent annual growth. All figures are adjusted to the current GDP definition.
2 Based on specific measures adopted with the 2004 budget.
3 An estimate based on the measures adopted until early 2004 and actual growth for 2004-2006.
(consistent with OECD experience)
Paraphrasing Winston Churchill:
"You can trust the government to do the right thing, after exhausting every other possibility“
Looking forward: Need for clear long-term target and multiyear budget framework:
- Bypassing the target with long-term programs.
- An expenditure ceiling without a long-term target, makes tax cuts a “free-play”.