Fiscal Consolidation: Taking Stock of Success Factors, Impact, and Design

The current economic policy implemented in different countries takes account of the changing external and internal circumstances. The recent crisis (2007-2008) revealed the weakness of the established economic theories, also as regards fiscal policy. Consequently, a great number of countries all over the world saw problems with the growing public finance deficit and the level of public debt. To address it, consolidation measures were taken, aimed to stop this tendency and to gradually go back to the fiscal balance. In this context it is important to identify factors that contribute to the success of the consolidation process undertaken. The article identifies these variables, using a specially built logit econometric model with data from the last 20 years. It also indicates a lack of correlation between achieving a consolidation success and the consolidation method chosen i.e. whether tax policy or expense policy is used for consolidation.

Belgium is facing higher structural deficits and rising debt after the pandemic and energy crisis. Fiscal consolidation is needed to lower inflation, rebuild buffers, reduce debt, and preserve Belgium’s social contract. While designing an appropriate fiscal consolidation path involves trade-offs, an ideally front-loaded and significant adjustment to achieve a medium-term structural balance would reduce public debt towards the 60 percent debt threshold, significantly reducing vulnerabilities. Experiences in other countries and in the past in Belgium show that while ambitious, such an adjustment is achievable. Comparisons with peers show that rationalizing and increasing the efficiency of social benefits and the public wage bill would need to be at the core of the consolidation effort. All federal entities should share the burden of the adjustment, in a coordinated manner, with accountability at all levels of government, and within a credible and clear multi-year consolidation plan. Comprehensive spending reviews would help target budgetary saving. To mitigate the growth impact in the near term and boost potential growth, public investment should be preserved, and the adjustment should go together with structural reforms to increase labor force participation and productivity.

This book presents carefully selected chapters from the proceedings of the 6th International Scientific Conference on Business and Economics (ISCBE),Tetovo, North Macedonia, which took place in May 2023. The chapters address a wide range of areas relevant to contemporary business and economics issues such as economic shocks, high inflation, energy crisis, COVID-19, growth prospects, economic forecast, labor market, gender inequalities, migration, entrepreneurship, and family businesses, firm development and innovations, technological transformation, etc. Researchers learn about the latest studies that discuss emerging challenges and perspectives of business and economics in the perspective of post-crisis economic recovery, consolidation, and stability.

Belgium: Selected Issues