Comment on Anne Brunila: Structural Reforms and Fiscal Sustainability

Abstract

Fiscal sustainability is usually defined as debt sustainability which means that the fiscal stance must eventually permit repayment of the stock of debt. One of the most important threats to fiscal sustainability is the ageing population in industrial countries and its effect on pension and health expenditures as well as on the tendency to reduce the growth potential. Policymakers have to address these threats by containing public expenditures and the tax burden, and by designing growth-enhancing structural reforms that take interdependencies into account. Structural reforms should comprise all aspects of public sector involvement, in particular the legal setting, the size and efficiency of government and the impact of government on private sector productivity. Given the uncertainties concerning the overall impact of public sector activities, reform strategies must be well-designed to secure their positive effects on fiscal sustainability and thereby on growth. Eclectic measures are likely to result in ambiguous, and therefore partly undesirable, effects.