Narrow Results

Climate change and climate mitigation policies pose significant challenges to both the economy and public finances. This paper analyzes the long-term fiscal implications of climate policies aimed at achieving net-zero emissions in Switzerland by 2050. Using a novel budget-impact projection framework, we consider four climate policy scenarios with different mixes of carbon pricing, regulation and subsidies. Our projection analysis shows that the path to net-zero emissions will put pressure on public finances in the coming decades. This result primarily follows from the projected negative impact of climate mitigation policies on economic growth, which in turn dampens the growth of tax revenues and social security contributions. We highlight the importance of compensating for revenue losses due to the erosion of the fuel tax base as a result of the electrification of the transport sector. Finally, we show that the use of subsidies in climate and energy policies exacerbates fiscal pressures on the public expenditure side. Our projections highlight the need for policy action and the importance of forward-looking climate and fiscal policies to ensure sustainable public finances during the energy transition.

This paper examines Singapore's fiscal position and its unique way of financing targeted welfare programs. We examine how reserves are accumulated through fiscal discipline during times of phenomenal economic growth in Singapore and when Singapore was enjoying demographic dividend. The existence of the large accumulated reserves has resulted in particular features of the Singapore's budgetary process, such as fiscal rules, which govern the utilization of revenues from the reserves. Innovative budget implementation, such as Block Budgeting, has helped Singapore to ensure fiscal sustainability. The accumulation of reserves throughout its economic history has afforded Singapore a unique way to fund social protection through special transfers and funds, without having to raise taxes.

Singapore’s rapidly aging population poses significant challenges to the government’s long-term fiscal sustainability as it structurally affects government revenue and expenditure. Amidst the demographic trends, total government spending has skyrocketed to unprecedented amounts in 2020 in response to the COVID-19 pandemic. This paper evaluates Singapore’s fiscal sustainability and intergenerational fiscal impacts through the lens of generational accounting and actuarial analyses, before and after COVID-19. Our model predicts a pre-COVID absolute intergenerational gap of S$512 thousand between future generations and current newborns, implying that there is considerable intergenerational inequity. This gap increases by a further S$67 thousand after factoring in COVID-19’s impact on government net spending and short-term fertility rates. Fiscal balance can be restored in the short term and intergenerational equity in the long term, after incorporating key policy changes such as Goods and Services Tax (GST) hike and carbon tax increases.

Despite the rise in public debt, Japanese Government Bond (JGB) yields have remained low and stable, supported by steady inflows from household and corporate sectors, high domestic ownership of JGBs, and safe-haven flows in light of ongoing European debt crisis. Nonetheless, the market capacity to absorb new government debt will likely decline over time as the population ages, posing risks for the JGB market. This paper examines the key risks of the JGB market, including a decline of private sector savings and potential spillovers from global financial distress, which could push up the government bond yields. A sharp rise in interest rate could pose challenges on public debt dynamics and financial stability in Japan. In that regard, more ambitious fiscal reforms to reduce public debt will help limit these risks.

A key issue facing U.S. water utilities is that while costs are generally fixed and increasing over time, the revenue is typically variable and has generally been decreasing/dampening over time, making it harder to maintain fiscal sustainability. Based on a comprehensive review of the relevant literature, we highlight the major factors that can potentially impact the fiscal sustainability of a water utility from an economic perspective. Furthermore, using numerical examples and data from North Carolina, we critically examine which of these factors actually contribute to the fiscal unsustainability of water utilities. We conclude that decreases in demand and increases in costs are the two primary driving forces. Particularly, rate increases cannot be attributed as a determinant of fiscal unsustainability because of the inelastic nature of water demand. Finally, we also highlight strategies for U.S. water utilities to improve their fiscal sustainability.