Fiscal Consolidation and the Implications of Social Spending for Long-Term Fiscal Sustainability

Abstract

This paper sheds light on the scale of fiscal consolidation that will be needed toensure long-term sustainability and on the potential benefits of institutional reforms inmitigating budget pressures of social spending. Based on alternative scenarios, resultssuggest that, in several OECD countries, the fiscal challenges are exacerbated in the longterm by spending pressures related to health and pensions. This paper shows howinstitutional reforms may support long-term fiscal sustainability and, at the same time,reduce adverse short-term effects of fiscal consolidation on growth.