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Fiscal democracy or why sound fiscal policy, budget consolidation and inclusive growth require fewer, not more, attempts to control the future

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Abstract:

Tackling deficits is like treating a symptom, not the disease. Today's disease is largely related to something unique in all of modern history: officials who have increasingly competed to control most, all, or more than all of the resources that are likely to be available to government for the future. This has created four related economic problems: unsustainable long‐term budgets; a weakened ability to conduct future counter‐cyclical policy; fiscal sclerosis due to budgets being increasingly focused on consumption; and an aged set of policies to promote inclusive growth. Meanwhile three political dilemmas arise: a decline in fiscal democracy and in the related ability of each generation of voters to decide what it wants to do with the revenues that accompany economic growth; a classic prisoners' dilemma where both the political left and right lose by acquiescing, respectively, to spending cuts or tax increases; and difficulty in "fixing" government, since to do anything new requires reneging on some past promise.

Document Type: Review Article

Publication date: April 1, 2012

oecd/16080289/2011/00002011/00000023/1111011ec007
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