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The Cost of Future Policy: Intertemporal Public Sector Balance Sheets in the G7
Author:
Yugo Koshimanull

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Jason Harrisnull

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Alexander F. Tiemannull

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Alessandro De Sanctis
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Series:
IMF Working Papers
Volume/Issue:
Volume 2021: Issue 128
Language:
English
Publication Date:
06 May 2021
DOI:
https://doi.org/10.5089/9781513573335.001
ISBN:
9781513573335
ISSN:
1018-5941
Pages:
48
Keywords:
balance sheet framework; negative Intertemporal Net Financial Worth; INFW 0; evolution of INFW; INTERTEMPORAL NET; Financial statements; Health care spending; Fiscal stance; Pension spending; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper compiles the Intertemporal Public Sector Balance Sheets for all G7 countries and examines their relationship with government borrowing costs. In 2018, all G7 countries have negative Intertemporal Net Financial Worth (INFW), falling short of their intertemporal budget constraint. A decomposition of the evolution of INFW shows that short-term fluctuations are mainly driven by fiscal policy changes, while in the long run demographic changes and health and pension obligations play a larger role. We find that on average a 10 percentage point of GDP increase in INFW reduces the (future) 10-1 year sovereign yield curve spread by 2.8 basis points. This results suggest that financial markets pay attention to governments’ future policy obligations, in addition to its current assets and liabilities.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2021: Issue 128