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Post-crisis Fiscal Policy$
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Carlo Cottarelli, Philip Gerson, and Abdelhak Senhadji

Print publication date: 2014

Print ISBN-13: 9780262027182

Published to MIT Press Scholarship Online: September 2015

DOI: 10.7551/mitpress/9780262027182.001.0001

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Long-Term Fiscal Challenges

Long-Term Fiscal Challenges

(p.515) 19 Long-Term Fiscal Challenges
Post-crisis Fiscal Policy

Baoping Shang

Mauricio Soto

The MIT Press

This chapter examines public spending on pensions and health care as well as the rapid growth and projected increase of these costs in relation to GDP in advanced and emerging economies over the next two decades, suggesting that such increases will add to the already urgent need for fiscal adjustment in many countries. It first presents projections for spending in both public pensions and health care for twenty-eight advanced and twenty-two emerging economies before discussing reform options to improve the long-term sustainability and performance of public pension and health care systems while safeguarding the most vulnerable. For countries with large projected spending increases and limited fiscal space, the challenge is to contain the growth of public pension and health spending without adversely affecting the social objectives of these programs. The viable options to contain pension spending include curtailing eligibility, reducing benefits, or increasing contributions. While all of these options involve apparent trade-offs, increasing the retirement age has many advantages. Containing public health spending requires a mix of macro-level controls, such as imposing budget caps, and microlevel efficiency-enhancing reforms, such as strengthening market mechanisms.

Keywords:   public spending, public pension, health care, GDP, fiscal adjustment, eligibility, benefits, retirement age, advanced economies, emerging economies

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