G-7 fiscal restructuring in the 1990s: macroeconomic effects

Fiscal restructuring G-7 fiscal restructing in the 1990s: macroeconomic effects During the 1990s many countries are undertaking major fiscal restructuring, cutting expenditures and raising taxes. The objectives are varied, ranging from the need to stabilize public debts to increasing efficiency by reducing distortions. This paper assesses the macroeconomic effects of such measures in the case of the G-7 countries. It presents the policy measures already taken or currently planned, and analyses their effects, both locally and on partner countries. The general picture is one where fiscal restructuring initially leads to output losses followed by a recovery. In the longer run, the choice of instruments makes a significant difference. Those countries which rely primarily on expenditure cuts or indirect tax increases in their fiscal restructuring (the United Kingdom, France and Japan) are projected to enjoy output gains from their adjustment over the long run, while those countries relying mainly on labour and capital taxes (Italy, Germany and the USA) are projected to suffer output losses. — Leonardo Bartolini, AssafRazin and Steve Symansky