English, Article edition: The Government Strategy For Fiscal Consolidation: Its Macroeconomic Effects Fritz Breuss; Alois Guger; Gerhard Lehner

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Physical Description
  • article
Language
  • English

Edition details

Title
  • The Government Strategy For Fiscal Consolidation: Its Macroeconomic Effects
Author
  • Fritz Breuss
  • Alois Guger
  • Gerhard Lehner
Physical Description
  • article
Notes
  • In a Working Agreement, the new coalition government proposes a set of measures designed to contain public spending, reduce deficits, and stabilize public debt over the medium term. This article sets out to quantify the measures envisaged and, using the WIFO econometric model, to assess their impact on major policy target variables. The proposals listed in the annex to the Working Agreement concentrate on four main areas of public spending: government payroll; retirement benefits; social transfers, particularly family and unemployment insurance benefits; and public investment and subsidies. Implementation of savings, as planned, is estimated to relieve federal expenditure by a cumulated Sch 120 billion over the next four years. The simulated macroeconomic effects should be read against a baseline medium-term scenario incorporating the effects and policy decisions related to EU membership but assuming no change in policy otherwise. According to these calculations, the consolidation measures dampen the growth of real GDP by approximately ¼ percentage point per year, private consumption by about half a point and gross fixed investment by 0.4 percentage point. Slower output growth entails a loss of 15,000 jobs over four years, pushing up the unemployment rate by ¼ percentage point. The current account should improve under the impact of weaker import demand. A major goal of the consolidation strategy is for Austria to meet the convergence criteria for participation in a future European Monetary Union. In the absence of correcting fiscal measures Austria would miss the current deficit target (3 percent of GDP according to the Maastricht Treaty) by 1998. Timely implementation of the spending cuts envisaged would bring the general government deficit down to 2.3 percent of GDP in 1998 and should stabilize the public debt ratio at around 66 percent (Maastricht target 60 percent). The redistributive impact of the fiscal measures is difficult to assess at the present stage where details are not yet known. Those measures intended to harmonize entitlements from different retirement schemes and to streamline family support should, in principle, reduce income inequalities. However, the abolition of supplementary maternity benefits for single mothers and of family supplements for the unemployed may hit primarily the lower income groups and add to their poverty risk. The latter measures are also those most likely to depress aggregate demand, given the high spending propensity of low income earners.
  • Das Konsolidierungsvorhaben der Bundesregierung – gesamtwirtschaftliche Wirkungen; The Government Strategy For Fiscal Consolidation: Its Macroeconomic Effects
  • RePEc:wfo:monber:y:1995:i:1:p:24-30
Language
  • English
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