Fiscal Policy: The Journey Toward a Low Debt to GDP Ratio and Smaller Government

doi:10.1017/9781108907620.003

2 - Fiscal Policy: The Journey Toward a Low Debt to GDP Ratio and Smaller Government

from Part I - Government Policy and Macroeconomic Developments

Published online by Cambridge University Press: 04 February 2021

Edited by

Reuben Gronau and

Avi Ben-Bassat: Affiliation:
Hebrew University of Jerusalem
Reuben Gronau: Affiliation:
Hebrew University of Jerusalem
Asaf Zussman: Affiliation:
Hebrew University of Jerusalem

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Summary

The chapter analyzes the structural processes and policies that led to the reduction in the public debt to GDP ratio from 111 percent in 1998 to 60 percent in 2017, and the process of reducing the share of public expenditure in GDP, most of which reflected the fiscal consolidation program in 2002–2004. It shows that the medium-term fiscal targets did not serve as a policy anchor and that during the surveyed period fiscal policy was consistently pro-cyclical. It was also found that policy decisions about specific expenditure programs, often implemented after a long delay, led to many of the changes in the fiscal targets. Accordingly, it is shown that the policy of reducing government expenditure and the tax burden–rather than the deficit–during the previous decade began well before it was manifested in the data. The analysis indicates that the contribution deficit reductions and GDP growth rates to reducing the debt ratio was secondary; most of the debt ratio’s reduction reflected National Accounts revisions, which increased GDP figures retroactivity; revenues from privatization and the repayment of credit provided to the public in the past; and debt revaluation.

Keywords

Fiscal rules Fiscal consolidation pro-cyclical policy political economy debt ratio

Type: Chapter
Information: The Israeli Economy, 1995–2017
Light and Shadow in a Market Economy
, pp. 41 - 72

DOI: https://doi.org/10.1017/9781108907620.003 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2021

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