Almost all advanced economies have implemented significant fiscal adjustment since 2010. Nevertheless, their current fiscal positions differ significantly, primarily reflecting uneven starting conditions and differences in the impact of the crisis on their fiscal accounts, rather than variations in the extent of postcrisis adjustment.
A moderate and uneven recovery is taking place in advanced economies, supported by lower oil prices, continued accommodative monetary policy, and slower fiscal adjustment. However, high public and private debt levels continue to pose headwinds to growth and debt sustainability in some advanced economies. In addition, inflation is below target by a large margin in many countries, making the task of reducing high public debt levels more difficult. Growth in emerging market economies is softening, and financial and exchange rate volatility has increased public financing costs for some of them. Meanwhile, lower oil and commodity revenues have created challenges for exporting countries.
Fiscal policy is often used to smooth fluctuations in economic activity, particularly in advanced economies. Because it reduces macroeconomic volatility, fiscal policy can boost real GDP growth. Specifically, a plausible increase in fiscal stabilization—measured as the sensitivity of the overall budget balance to the output gap—could boost annual growth rates by 0.1 percentage point in developing economies and 0.3 percentage point in advanced economies. Automatic stabilizers are an important component of fiscal stabilization, but many countries tend to suppress their impact in good times, leading to a significant buildup of public debt. Fiscal frameworks that promote fiscal stabilization through the cycle can foster more stable and higher growth while supporting debt sustainability. Countries seeking higher fiscal stabilization should avoid undermining automatic stabilizers with procyclical measures. Those seeking to enhance automatic stabilizers should do so without unduly increasing the size of the public sector or creating undesirable distortions (such as high marginal tax rates).
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This paper focuses on the Doha Development Agenda. The paper highlights that over the past 20 years, world trade has grown twice as fast as world real GDP, deepening economic integration and raising living standards. The paper underscores that the launch of a new trade round in Doha in November 2001 was a major breakthrough following the debacle in Seattle in 1999. The new round places the needs and interests of developing countries at the heart of its work, but a successful outcome for rich and poor nations alike is by no means a foregone conclusion.