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NATIONAL INSTITUTE ECONOMIC REVIEW No. 217 JULY 2011

FISCAL POLICY IN THE LONGER TERM Ray Barrell*

Governments are important players in many parts of the economy, and at present perhaps the most visible is the balance they set between taxing and spending. Tax and spending polices are in part designed to redistribute resources between individuals, but they can also be used to redistribute resources over time. Governments can also use tax and spending policies to sustain or restrain economic activity, and in most countries a case can be made for using active fiscal policy in periods of clear economic distress, or in periods when it would be useful to restrain imbalances that can lead to financial crises. As a result it is difficult to gauge the appropriate stance of policy. Short-run problems have to be balanced against longer-term needs, and mistakes are common. In the UK, for instance, in the six years up until 2008 the balance of policy was perhaps too loose, whilst over the next five years it is probably too tight, even though deficits are projected to be higher than they were before 2009. This issue of the Review contains a number of papers on fiscal policy issues. The topic has been popular in part because the economic downturn that followed from the financial crisis in 2008 led to a sharp decline in revenues and increase in spending in a number of economies, and government borrowing has risen. In addition, problems in the banking sector have led to direct interventions by governments to recapitalise banks, resulting in further increases in debt stocks. The increase in debt stocks in the UK, the US, Greece and Ireland (for instance) has led many to argue that it would be unwise to use fiscal policy to deal with the problems associated with lack of aggregate demand. Although there may be situations where fiscal policy is counterproductive, this would not

appear to be the case in most economies at present, and fiscal policy remains useful for stabilisation purposes. It is also important to remember that the debt stock in the short term is not the only liability we should be concerned with, and that longer-term (perhaps implicit) liabilities need to be evaluated. We first address the problem of the deficit bias in policymaking in democracies, and we look in particular at that bias in the UK over the past two decades. There are always pressures to expand spending programmes now, and politicians often believe that they have transformed the world and raised trend growth. This can lead to excessive structural deficits, as in the UK between 2002 and 2008, or inadequate structural surpluses, as in Spain and Ireland over a similar period, as Bergin, Fitzgerald, Kearney and OSullivan in this Review suggest. These biases can become embedded in actions despite strong evidence against them because of the ideological commitments of politicians, as Simon Wren-Lewis in this Review notes. There has been much discussion of the importance of fiscal institutions in restraining behaviour, but these are hard to construct, as Charles Wyplosz suggests, and international rules may be more effective than national fiscal councils, although independence in the construction of forecasts is very important. There are longer-term fiscal issues that have to be dealt with in designing institutions, the most important being the combination of increasing longevity and pensionable periods in the population with generous and unfunded pension commitments by governments. The Office for Budget Responsibility (OBR, 2011) has produced a

*I would like to thank Jonathan Portes, Dawn Holland and Simon Kirby for their comments. Any errors remain mine.

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report suggesting that these problems can be dealt with in the UK by tightening fiscal policy by half a per cent of GDP in each decade between 2020 and 2060. As Auerbach (2011) discusses, this is a common problem throughout the OECD, and it is difficult to deal with. We discuss the longer-term fiscal needs of the UK economy, and suggest ways of reducing these problems. These longer-term issues lead to a discussion of net national saving and its adequacy, and Barrell and Weale (2010) suggest that the UK has not been saving enough. The same is definitely true for Greece, which began dissaving1 in 2006 as fiscal policy became expansionary, and this may be one reason why it faces a crisis in government credibility, although in some other countries that face problems, such as Spain and Ireland, savings levels were quite high until 2007. Fiscal policy is not only about longer-term issues, and although fiscal consolidations may be necessary, it remains the case that, in extremis, fiscal policy may be a useful tool for keeping the economy from contracting sharply. Even though no real case can be made for the efficacy of fiscal fine tuning, fiscal policy remains available for coarse tuning. We discuss the evidence on the effectiveness of fiscal policy, and conclude that no case can be made for the possibility of a contractionary fiscal expansion in the UK, where policy actions that involved a temporary increase in the deficit would result in output being lower than it would otherwise have been.

upon meeting targets over a cycle, and hence it was subject to politicians overoptimistic views of potential growth and the output gap. Inevitably, as Wyplosz in this Review suggests, the deficit bias inherent in this situation meant that growth projections were optimistic and cyclical definitions carefully worked on. In addition, revenue projections by the UK Treasury, made between 2002 and 2007, even given growth forecasts, seemed optimistic to forecasters at the Institute.2 Given that the objective was to balance the current budget over the cycle, fiscal policy should have been 12 per cent of GDP tighter between 2002 and 2008, as figure 1 suggests, and hence the debt stock should have been about 10 per cent of GDP lower than it was at the start of the crisis in 2008. Figure 1 contains some indicators of the fiscal stance in the UK since 1995. The assessment of fiscal policy in the past depends both on the outturn for the deficit and an estimate of where output stood relative to capacity. The Institute estimates use a production function that depends on actual capital, trend labour input and an estimate of technical progress to give an indication of trend output and its growth. In the ten years up until 2007 it would seem reasonable to say trend growth averaged 2 to 2 per cent a year, aided in part by immigration and by trend changes in participation, as well as robust technical progress (see Barrell, Holland and Liadze, 2011). Going forward we expect the financial crisis to have left a scar on output of around 4 per cent and for reasons independent of the crisis we Figure 1. Surpluses and the output gap in the UK
4 2 0 -2 -4 -6 -8 -10 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 NIESR estimate: Output gap NIESR estimate: Structural surplus (% GDP) NIESR estimate: Structural current surplus (%GDP)

The deficit bias, fiscal institutions and the UK structural deficit

There is a strong case to be made for the UK (and other countries) to run a fiscal surplus in good times. Barrell (2011) argued that the need to prepare for the next crisis, plus the aging of the population in combination with the chronic lack of national saving in the UK, should have led governments to accumulate assets and run surpluses for much of the past decade. Instead of this, the UK government (in line with that in the US) ran a structural deficit between 2002 and 2008. A new government came to power in 1997 with a promise to introduce fiscal constraints that would prevent the repetition of the excessive deficits in the previous five years. Targets were set for the current government budget deficit (borrowing less net investment) and for the debt stock, and if it had been independently monitored and abided by this might have been an adequate framework. However, the evaluation of the success in meeting these targets was left in the hands of the government. Success depended

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expect trend growth to be lower at around 2 to 2 per cent (see Barrell and Kirby, 2011). We plot an estimate of the output gap and the structural current and overall level of net borrowing as a per cent of GDP in the UK in figure 1. The output gap was positive for a sequence of years in part because of a set of unanticipated shocks which generally pushed the economy in one direction. These estimates are based on our modelling work, for instance in Barrell, Hurst and Mitchell (2007) and our forecast of the UK economy published each quarter in the National Institute Economic Review. We estimate that the budget deficit would be a per cent of GDP worse for each additional increase in the output gap of 1 per cent, which is somewhat below the impact used in Treasury estimates, somewhat higher than indicated by Barrell, Hurst and Mitchell (2007) and in line with Wyplosz (2005). The UK economy appears to have been operating about 1 per cent above capacity for seven to eight years in the run-up to the crisis, with the potential impact on inflation held back by the effects on prices of a number of factors. In the early part of the period, the impact of the 30 per cent appreciation of sterling between 1996 and 2000 was important, as were the effects of increased trade with low wage countries such as China. Expansionary fiscal policy after 2002 would have had more impact on the economy and especially on inflation if it were not for the completely unanticipated increase in migration from the New Member States that began in 2004.3 In addition, the house price bubble after 2004 raised consumption and added to demand in an unanticipated way. As a consequence of these expansionary policies, when the recession arrived in 2008 the UK entered it with a structural deficit of almost 4 per cent of GDP. The collapse in revenue, especially from transactions in housing and financial assets, increased the deficit, as did the need for both discretionary and automatic stabilisation measures. In addition the combination of the scar to output (and hence incomes) per head and inertia in public sector wage setting meant expenditure temporarily rose as a per cent of GDP. Current projections suggest that the structural deficit is around 6 per cent of GDP and, as the economy is growing below trend, the output gap has not been closing. However, the fiscal consolidation that is under way, which will be slowing growth by half a per cent a year between 2010 and 2012, is reducing the structural deficit. The administration has also set in train an attempt to deal with longer-term fiscal problems by raising the retirement age by one year, albeit delayed until 201820.

The new administration in the UK has set up a new targeting regime in 2010 and, much more importantly, it has established an independent forecast and policy monitoring body with a degree of cross-party support. The Office for Budget Responsibility (OBR) has significant independence when constructing a forecast, and hence will not be subject to bursts of politically driven enthusiasm when making its projections. It would perhaps be better to attempt to reach a compromise with all three parties before the election as to what the rules and institutions should be, so that they, and the OBR, are not abandoned as soon as the administration in power is replaced. This was one reason for supporting the now failed Stability and Growth Pact, because it cannot be changed without agreement. The Pact was relatively successful in keeping deficits within bounds from 1996, and Larch and Turrini in this Review discuss some of its advantages. However, the Pact can be ignored, and its continued success would have depended on good behaviour by the French and Germans in 2005 when they had excessive deficits, and on a degree more independence for EuroStat in order that its worries about Greek government borrowing figures from 2001 onwards could have led to a change in behaviour.4 Wyplosz, in this Review, suggests that experience of a decade of fiscal policy changes indicates that ruleguided behaviour is perhaps better than external institutions, and that independent monitoring is useful. The creation of independent fiscal bodies controlling deficits is probably unwise at worst, and ineffective at best. Deficits are part of income redistribution, and are central to government policies, and the role of written or judicial review-based constitutions is to control abuses resulting from policies.

Fiscal consolidations and output

Worries about the evolution of debt are often phrased in terms of its impact on the cost of borrowing, and there is some evidence of a link between the level of borrowing and the risk premium attached to government debt. The risk of default, however, depends on many other factors, and the UK and the US for instance appear to be able to run large deficits without attracting a risk premium. In the UK this may be because consolidation is under way, but that is not the case for the US. If an expansion of the fiscal stance took place it could raise premia, and it is logically possible that the rise in the risk premia could have an impact that was large enough to offset the expansionary effect of the fiscal innovation. In the 1990s a significant and very influential literature developed from the papers by Alesina and Perrotti (1995) on

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expansionary fiscal contractions. It is worth spelling out how this might happen in order to help evaluate its plausibility. This literature also suggested that fiscal consolidations based on spending cuts were more effective than those based on tax increases. Both these propositions have been used to support the current consolidation in the UK and, as Wren-Lewis in this issue suggests, this reflects ideology rather than evidence or even good theory. The impact of a fiscal innovation depends upon the instruments used to affect the economy, the characteristics of the country involved and the situation in which it finds itself. Government spending on goods and services is likely to have a larger impact than changes in taxes or increases in benefits, as some tax changes will be absorbed by changes in saving, whilst spending directly changes employment and hence incomes. Barrell, Fic and Liadze (2009) demonstrate this,5 and they also show that more open economies should have smaller multipliers. In addition, if more consumers are borrowing constrained, as they are likely to be in a recession, multipliers will be larger than when the economy is operating at full capacity. This means that fiscal policy has more benefits in a recession, and also that the net benefit of a temporary fiscal expansion could exist, as the expansion will take place in a world where output rises more than it falls when the matching contraction takes place. A fiscal expansion requires that more debt is issued, and that more interest is paid on that debt. If the perceived risk of government default increases, then a higher rate of interest will have to be paid on debt that is being refinanced, and hence future tax liabilities will be higher. If the default risk is limited to the government, and the market believes that private sector agents will remain solvent and repay their debts in the normal way, then the impact of a rise in the government risk premium on output may be very limited in the short run. However, if the risk of default is expected to spread to the private sector, a risk premium could develop on actions outside the government sector and this might raise the exchange rate and reduce private sector output below what it would otherwise have been. Given that borrowing could raise risk premia in the private sector, it is possible that a fiscal expansion in a very open economy with high debts could be contractionary, and the common examples referred to are Ireland and Denmark in the 1980s. It was also suggested in the literature on fiscal consolidations that

Sweden had a contractionary expansion. Perrotti (2011) has re-evaluated previous work, partly in the light of comments from economists in the country in question, and has come to the conclusion that so far, at least amongst the OECD countries, we have no evidence that any fiscal consolidation has been expansionary. This view is supported by the careful analysis in the IMF World Economic Outlook (2010). Denmark and Ireland are very open, and have a single major trading partner who can dominate events, and expansions in these partners could have easily overwhelmed the impacts of own country fiscal contractions, as probably happened in the 1980s in these countries. Even in Greece at present it is not clear that a temporary 1 per cent of GDP fiscal expansion would be contractionary. Greece is a relatively closed economy, and a small increase in debt would be unlikely to worsen fears for the solvency of the private sector. In Ireland it is relatively clear that a fiscal expansion would have little impact on output as the economy is so open. Impacts on risk premia would do little to change this. The ideology of consolidation, as Wren-Lewis in this Review calls it, is also reflected in views on the content of a consolidation. It is perhaps the case that up until the 1990s, and perhaps even now in Greece, a spending based consolidation would have been more effective than a tax based one, largely because there was a great deal of inefficiency in the public sector and in nationalised industries. However, there are three ways to consolidate: cut spending, raise taxes or change institutions such as the age of retirement. We turn to the latter in the next section. Consolidations are political exercises with costs and benefits attached. They can also be smoke and mirrors to hide other political objectives. A tax based consolidation may have fewer short-term costs associated with it, especially if it involves changes in direct taxes. Changes in indirect taxes may induce an interest rate response from the central bank, as the IMF (2010) suggests, and this raises the cost of taking such action. The benefits depend on which policy is most likely not to be reversed. Larch and Turrini in this Review support the view that, in the past, spending policies were less likely to be changed, but they also suggest that in Europe there was a clear change in behaviour around 1995. After that date tax based polices perhaps became more effective, in part because the low hanging fruit from expenditure consolidations had already been picked. Perhaps more importantly the rules for fiscal behaviour had changed, and the Stability and Growth Pact appears to have impacted on behaviour in Europe. There are also other ways forward, and

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changing institutions such as the length of retirement would both raise output and consumption for all, and also have a significant impact on the public finances. Financial market commentators consider this to be the strongest commitment that governments could make, and hence it is the most credible path to consolidation.

Fiscal policy in the longer term

There are many ways to look at the setting of fiscal policy in the longer term, and Barrell and Weale (2010) argue that all should be done in the light of fairness between generations. If there are no demographic differences between cohorts in the population, so the age structure remains constant, then government (and other forms of) net borrowing now reduces the income available for future generations. Empirical work in Barrell and Weale (2010) suggests that over the past thirty years in the OECD a 1 per cent of GDP decrease in net government saving has been associated with a decrease in net national savings of around half a per cent of GDP. As net national saving is defined as the accumulation of capital (national investment net of depreciation) plus the accumulation of income earning assets abroad, national wealth will be lower than it would otherwise have been.6 In a small open economy output will normally be unaffected by government deficits,7 but incomes will be reduced as net foreign assets decumulate. Government deficits transfer income from our children to our generation, which is why they are popular. Institutions need to be designed to protect those childrens interests. Of course, in a large economy, or in the world as a whole, an increase in government borrowing affects the balance of global saving and investment, and hence there may well be a feed-through from borrowing to output. The UK is not a large economy in this sense, whilst the US is, and hence relying on US evidence on the effects of fiscal policy, as the OBR (2011) appears to do, is misleading. Although criticisms can be made of the OBR report, their conclusions on the outlook for the long-term prospects for the public finances are sound. Both they and Auerbach (2011) suggest that the current debt position is not as important to long-term prospects as the implicit liabilities due to the current commitments of government to age and health-related spending. Cohorts are not identical, and technology does change and this has implications for the public sector in the future. With current population projections and plans for retirement age increases and commitments on pensions uprating, they project that spending on state pensions and

pensioners benefits will rise from 6.5 per cent of GDP in 201516 to 9.1 per cent of GDP in 206061. This spending could only be reduced by reducing the generosity of pensions or reducing the number of pensioners. Health and long-term care costs are expected to rise from 8.6 per cent of GDP to 11.8 per cent of GDP over the same period. This latter increase is also age related, but perhaps more difficult to deal with than pensioners costs. Changes in medical technology are increasing life expectancy, but healthy life expectancy has not increased quite so rapidly, and it is unhealthy life that absorbs much of the costs of the health system. Even if unhealthy life is not extended, the aging of the population means that the proportion of the population in that state will be rising, and hence medical costs will rise as a per cent of GDP for this reason alone. Projections for the public finances based on unchanged policies and tax rates, as in Auerbach (2011), McCarthy, Sefton and Weale (2011) and OBR (2011), suggest that by 2060 the fiscal gap, defined as the change in the deficit that would be needed to stabilise the debt stock in 2060 at recent levels, will be around 68 per cent of GDP depending upon assumptions. However, over such a long period interest costs accumulate, and relatively early action can reduce these markedly. Barrell, Kirby and Orazgani (2011) look at length at the impacts of reducing the number of pensioners on the prospects for the public finances, and suggest that for every year on working lives the primary balance is reduced by about 0.6 per cent of GDP. Hence removing the projected primary balance of 3 per cent of GDP by 2060 would require an increase in working lives of five years. Given current plans this would reduce the ratio of the retired population to the adult population noticeably. Barrell (2011a) in commenting on Auerbach (2011), analyses the impact of keeping this ratio constant in eighteen OECD economies, and suggests that it would only achieve about 60 per cent of the required tightening; there would be a need for a fiscal tightening at some point of about 1 per cent of GDP. The longer-term fiscal prospects the UK faces are, according to Auerbach (2011) and Barrell (2011a) only marginally worse than the OECD average, and similar to those in the US. Not only do the Greeks face a financial crisis, they have by far the largest fiscal gap in the OECD (and the lowest retirement age at 60 and the highest replacement rate for pensioners see OECD, 2011 for details). Japan, Portugal and Spain also have worse problems than the UK and the US, whilst the Portuguese and the Dutch face similar difficulties, in that

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Figure 2. Further fiscal consolidation: impacts on government surplus, national income and national output
3.0 % GDP diff from base 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039

failures of fiscal policy in the run-up to the recent financial crisis. The setting of fiscal policy is inevitably more political than that of monetary policy, as it involves transfers of resources between individuals at one point in time and across periods of time. As a result, the case for institutions, rather than rules, is hard to make. However, we are still left with the dual problems of deficit bias and fiscal myopia in democracies, and debate has to focus on these. In good years there are always pressures on government to spend more and tax less, and debts and deficits build up. Unless these can be reduced, crises are inevitable. However, now is seldom a good time to start consolidation, although UK governments have been committed to this process since 2008. This in part reflects the recognition of the longer-term problems that are building up with pension commitments to an aging population in the UK. It may also reflect a desire to change the size and nature of the state. There is a strong case to be made for delaying consolidation, and a strong case for increasing its scope, either by raising taxes or extending working lives further, once the economy has returned to full capacity. Fiscal policy may be too tight for the short-run needs of the UK economy at present, but it does need to be tightened at some point for longer-term reasons. Fiscal policy settings have also to take into account short-term problems, and when output is far below capacity, as now, a case can be made for increasing borrowing and expanding demand. However, capacity is hard to measure, and political pressures are often such that politicians wish to believe there is spare capacity that they can absorb with fiscal expansion before the next election. Fiscal policy may now, in our judgement, be too tight, but it remains our judgement that in the boom years of 20028 it was too loose. Balancing short- and long-term needs in fiscal policy setting will be hard to deal with over the next decade, and they may need new institutions. The OBR is a good start, taking the judgement of trend growth out of the political domain. This should reduce the deficit bias in the system. However, more needs to be done to deal with fiscal problems in the longer term, and an agreement to extend working lives and limit pensions paid to what Barrell and Weale (2010) call the profligate generation who are retiring over the next three decades would be a sensible way forward for policymaking.

Government surplus (% GDP diff from base) GDP GNP

Note: Government spending on goods and services is progressively reduced by a cumulative 1 per cent of GDP between 2016 and 2020. Tax rates are assumed constant until 2040.

the problems all these countries face cannot just be solved by increasing the retirement age. If the UK were to raise retirement ages in the way discussed, a tightening of fiscal policy of half a per cent of GDP in 202025 would be enough to ensure a sound fiscal position. If retirement ages do not rise further, then a tightening of 1 per cent of GDP between 2016 and 2020 would do enough in addition, and at worst would reduce growth temporarily by 0.1 per cent a year for five years. In figure 2 we look at the effects of such a tightening on output (GDP), incomes (GNP) and government borrowing using the National Institute Global Economic Model, NiGEM. The debt stock would be 30 per cent of GDP lower by 2040, and hence by 2060 there may even be room to reduce taxes and stabilise the debt stock. By 2040 the deficit would be improved by 2.8 per cent of GDP, and by 2060 it would be 5 per cent of GDP better, leaving only a small gap to fill.

Conclusions
Arguments about setting up fiscal institutions to run policy in the same way as independent central banks run monetary policy are currently very popular after the

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NOTES
1 There are no published data on net national saving for Greece. Net national saving is investment net of depreciation plus the current account. The figure used comes from an attempt to construct this data for Greece and for the other EMU countries where it is missing from the OECD database, which are Spain, Portugal and Ireland. Of these countries only Portugal was dissaving in the mid-2000s. The comments on revenue buoyancy were repeated regularly. Two examples are given: page 50 in the April 2005 National Institute Economic Review and page 55 of the October 2007 National Institute Economic Review. The impacts of the migration on output and inflation were extensively discussed in the National Institute Economic Review, and page 52 of the October 2007 issue looked at the impacts and referred to previous discussions. These worries were expressed by EuroStat in November 2004 and frequently thereafter see http:// epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/GREECE/EN/ GREECE-EN.PDF). Barrell, Holland and Hurst (2011) set out multiplier patterns in eighteen major economies. It is important to look at the impact of the deficit on national, and not private sector, saving, as increases in deficits on average contain some increase in public sector investment, and this is productive. This point is not taken on board by OBR (2011). The OBR also assumes that private sector capital decumulates when governments borrow more, and hence output goes down. This is an odd assumption in a small open economy which takes the real interest rate from abroad. If the rate of return to capital is unchanged, then it is the ownership of capital that will change, and not its quantity. Fiscal deficits lead to reductions in net assets and in GNP, and not in GDP in small open economies such as the UK. Much of the discussion in this area, for instance in OBR (2011) assumes that we live in an economy with one interest rate. It is the case that there is evidence that the cost of borrowing by governments might rise with their debt stocks, with a 20 per cent of GDP increase in the debt stock raising borrowing costs by 2030 basis points for the government. There is no strong evidence that this spills over into a premium on private sector borrowing in a small open economy, and hence no evidence that it affects output in an economy such as the UK. It reduces income further.

REFERENCES
Alesina, A. and Perrotti, R. (1995), Fiscal expansions and adjustments in OECD economies, Economic Policy, 21, pp. 207 47. Auerbach, A.J. (2011), Long-term fiscal sustainability in major economies, Bank for International Settlements Working Paper, July. Barrell, R. (2011), Fiscal consolidation and the slimmer state, National Institute Economic Review, 215, January, pp. F49. (2011a), Long-term fiscal prospects: comment on Auerbach, Bank for International Settlements Working Paper, July. Barrell, R., Fic, T. and Liadze, I. (2009), Fiscal policy effectiveness in the banking crisis, National Institute Economic Review, 207, January, pp. 4350. Barrell, R., Holland, D. and Hurst, A.I. (2011), Fiscal multipliers and fiscal consolidations, OECD Working Paper. Barrell, R., Holland, D. and Liadze, I. (2011), Accounting for UK economic performance 19732009, National Institute Discussion Paper no 359. Forthcoming in a European Commission book on the UK economy published in September 2011. Barrell, R., Hurst, A.I. and Mitchell, J. (2007), Uncertainty bounds for cyclically adjusted budget balances, in Larch, M. and Martins, L.N. (eds), Fiscal Indicators, Brussels, European Commission, pp. 187206. Barrell, R. and Kirby, S. (2011), Trend output and the output gap, National Institute Economic Review, 215, January, pp. F6374. Barrell, R., Kirby, S. and Orazgani, A. (2011), The macroeconomic impact from extending working lives, Department for Work and Pensions Economics Paper no. 95. Barrell, R. and Weale, M. (2010), Fiscal policy, fairness between generations and national saving, National Institute Discussion Paper no. 338, and Oxford Review of Economic Policy, Spring. IMF (2010), International Monetary Fund World Economic Outlook chapter 3, October. McCarthy, D., Sefton, J. and Weale, M. (2011), Generational accounts for the United Kingdom, National Institute Discussion Paper no. 377. OBR (2011), Fiscal sustainability report, Office for Budget Responsibility, July. OECD (2011), Pensions at a glance 2011: retirement-income systems in OECD and G20 countries, www.oecd.org/els/ social/pensions/PAG. Perrotti, R. (2011), The Austerity Myth: gain without pain?, Bank for International Settlements Working Paper, July. Wyplosz, C. (2005), Fiscal policy: institutions versus rules, National Institute Economic Review, 191, January.

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