52>> BANCA D'ITALIA EUROS I STEMA

PUBLIC FINANCE WORKSHOP

Fiscal Sustainability: Analytical Developments and Emerging Policy Issues

Papers presented at the Banca d'ltalia workshop held in Perugia, 3-5 April, 2008

CONTENTS Foreword

Daniele Franco (Banca d'ltalia)

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13

Introduction

Daniele Franco, Maria Rosaria Marino and Pietro Rizza (Banca d'ltalia) Session 1

NEW METHODOLOGIES FOR ASSESSING FISCAL SUSTAINABILITY 1.

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"How to" of Fiscal Sustainability in Oil-rich Countries: The Case of Azerbaijan Luca Bandiera,* Nina Budina* and Sweder van Wijnbergen" ("World Bank) ( University of Amsterdam) '.." p.

29

Fiscal Sustainability in the EU: A Panel Data Diagnostic Antonio Afonso and Christophe Rault ( European Central Bank and ISEG/TULisbon - Technical University of Lisbon) ( * University of Orleans, University of Michigan, LEO, IZA and WDI) p.

49

Refinements to the Probabilistic Approach to Fiscal Sustainability Analysis Nathaniel Frank and Eduardo Ley ( University of Oxford) (" World Bank)

p.

69

Reporting on Federal Fiscal Sustainability in the United States Jagadeesh Gokhale (CATOInstitute, Washington D.C.)

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83

A Projection Model of the Contributory Pension Expenditure of the Spanish Social Security System: 2004-50 Joan Gil, Miguel Angel Lopez-Garcia, Jorge Onrubia, Cio Paxtot and Guadalupe Souto** ( Universitat de Barcelona) ( Universidad Autonoma de Barcelona) ( Universidad Complutense de Madrid)

p.

97

6.

Tangos, Sambas or Belly Dancing? Or, Do Spreads Dance to the Same Rhythm? Signaling Regime Sustainability in Argentina, Brazil and Turkey Santiago Herrera and Ferhan Salman C World Bank) (** Central Bank of Turkey)],

Comments Carine Bouthevillain (Banque de France) Comments Adi Brender (Bank of Israel)

p. 133

p. 153

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Comments Ernesto Rezk (Universidad Nacional de Cordoba, Argentina)

p. 159

p. '163

Session 2 SUSTAINABILITY ASSESSMENT AND POLICY IMPLICATIONS 7.

Economic Growth and Fiscal Sustainability in the EU: The Impact of an Ageing Population Giuseppe Carone, Declan Costello, Nuria Diez Guardia, Per Eckefeldt and Gilles Mourre (European Commission) p. 169

8.

Fiscal Sustainability and Policy Implications for the Euro Area Fabrizio Balassone,* Jorge Cunha," Geert Langenus,*** Bernhard Manzke,0 Jeanne Pavot,00 Doris Prammer000 and Pietro Tommasino ( Banca d'ltalia) ( Banco de Portugal) (**" National Bank of Belgium) ( ° Deutsche Bundesbank) (°° Banque de France) ( °°° Osterreichische Nationalbank) p. 217

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Restoring Fiscal Sustainability in the Euro Area: Raise Taxes or Curb Spending? Boris Cournede* and Frederic Gonand** (\OECD) ( Ministry of the Economy, Finances and Employment, France)

p. 257

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Pensions Under Ageing Populations and the EU Stability and Growth Pact Roel Beetsma* and Heikki Oksanen** ( University of Amsterdam) ( European Commission) ] Wealth Effects and Public Debt in an Endogenous Growth Model Jerome Creel* and Francesco Saraceno** (* ESCP-EAP and OFCE, France) (** OFCE, France)

p. 289

p. 315

Fiscal Sustainability and Structural Reforms - Incorporating Labour Supply Responses in Long-term Modelling Anna Kleen and Thomas Pettersson (Ministry of Finance, Sweden)

p. 333

Will We Treat Future Generations Fairly? Italian Fiscal Policy through the Prism of Generational Accounting Pietro Rizza and Pietro Tommasino (Banca d'ltalia)

p. 353

The Long-term Sustainability of Public Finance in Japan Yukihiro Oshika* ( Ministry of Finance, Japan)

p. 379

Comments

Maximilian Baylor (Department of Finance, Canada)

p. 399

Comments

Ranjana Madhusudhan (New Jersey Treasury)

p. 405

Comments Peter Part

(Federal Ministry of Finance, Austria)

p. 411

Session 3 HEALTH CARE AND LONG-TERM CARE 15.

16.

Health-care Expenditure Projections: Results, Policy Conclusions and Recommendations for Future Work Bartosz Przywara and Declan Costello (European Commission)

p. 415

An Examination of Health-spending Growth in the United States: Past Trends and Future Prospects Glenn Follette and Louise Sheiner (Board of Governors of the Federal Reserve System) p. 443

17.

Health-care Financing Reforms in Central and Eastern Europe: Common Problems and Possible Approaches Dubravko Mihaljek (Bank for International Settlements)

p. 465

The Impact of Ageing on Health and Long-term Care: The Case of Italy Rocco Aprile (Ministry of the Economy and finance, Italy)

p. 491

Projections of Elderly Health Development and Costs for Long-term Care in Sweden Marten Lagergren (Stockholm Gerontology Research Centre, Sweden)

p. 523

The Health-care System and its Fiscal Impact in Colombia Sergio Clavijo and Camila Torrente (ANIF, Colombia)

p. 533

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Global Aging Pressures: Impact of Fiscal Adjustment, Policy Cooperation, and Structural Reforms Dennis Botman and Manmohan Kumar (International Monetary Fund) p. 553

Comments Claudia Braz (Banco de Portugal)

p. 599

Comments Maura Francese (Banca d'ltalia)

p. 603

Comments Margit Schratzenstaller (WIFO, Austria)

p. 607

Session 4 ENVIRONMENTAL ISSUES AND SUSTAINABILITY REPORTING IN THE POLICY DEBATE 22.

Climate Change Brings Stormy Days: Case Studies on the Impact of Extreme Weather Events on Public Finances Martin Heipertz and Christiane Nickel (European Central Bank)

p. 613

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24.

The Effects of Long-run Emission Targets on the Finnish Economy Markku Stenborg* and Juha Honkatukia** (* Ministry of Finance, Finland) ( Government Institute for Economic Research, Finland) i The German Experience with Sustainability Reporting Christian Kastrop and Britta Velleuer (Federal Ministry of Finance, Germany)

p. 631

p. 643

25.

Are Italy's Public Finances Sustainable? The Role of Demography, Productivity and Labour Markets Paolo Biraschi, Lorenzo Codogno, Federico Giammusso, Manuela Nenna and Juan Pradelli (Ministry of the Economy andfinance, Italy) p. 661

26.

Five Years of the UK's Long-term Public Finance Report: Has it Made any Difference? Frank Eich (UK Treasury)

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28.

Projecting Pension Expenditure in Spain: On Uncertainty, Communication and Transparency Rafael Domenech* and Angel Melguizo" ( Economic Bureau of the Prime Minister, Spain) (** University of Valencia, Spain) Assessing Fiscal Sustainability in the G-7 Countries David Hauner, Daniel Leigh and Michael Skaarup (International Monetary Fund)

p. 687

p. 707

p. 731

Comments

Yngve Lindh (Ministry of Finance, Sweden)

p. 757

Comments

Lucio R. Pench (European Commission)

p. 761

Comments

Robert Tannenwald (Federal Reserve Bank of Boston)

p. 767