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Fiscal policy: Avoiding pro-cyclicality and safeguarding sustainability
| Content Provider | OECD iLibrary |
|---|---|
| Organization | OECD |
| Abstract | Public finances came under severe strain during the economic crisis, but the remarkable fiscal consolidation implemented during 2009 averted a confidence crisis and paved the country’s way into the euro area. The large-scale fiscal adjustment of about 9% of GDP included significant structural measures, but also sizeable one-off and temporary measures, including the diversion of state contributions to the mandatory funded second pension pillar to the general government budget. Fiscal policy is now confronted with three overlapping challenges: establishing a new balance between revenues and expenditure to ensure a durable improvement in the underlying fiscal position; protecting fiscal balances in the upswing; and preventing an erosion of contributions to the second pension pillar. The last is particularly important for preserving long-term fiscal sustainability. To address these challenges, fiscal rules and institutions need to be strengthened. The tax system can be enhanced to support fiscal consolidation and improve efficiency, while preserving the simplicity and transparency of the Estonian tax system. There is scope to raise the share of the least distorting property and environmental taxes. The efficiency of the VAT system was weakened during the recession. Strengthening VAT administration, reconsidering exemptions and possibly increasing the standard VAT rate could be used to compensate for reductions in more distorting labour taxes. |
| Page Count | 29 |
| Starting Page | 49 |
| Ending Page | 77 |
| Language | English |
| Publisher | OECD Publishing |
| Publisher Date | 2011-04-18 |
| Access Restriction | Open |
| Subject Keyword | Economics |
| Content Type | Text |
| Resource Type | Chapter |
