how does the political context in israel constrain which fiscal rules are best? yarom ariav director...

How does the Political Context in Israel Constrain which

Fiscal Rules are Best?

Yarom AriavDirector General

May 2009

Ministry of Finance

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1. The Israeli Society2. Inequality3. The Political System4. Historical Background5. Irregularity in Expenditures6. Fiscal Rules7. Summary

IMF – Conference on Fiscal Frameworks May 2009

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Heterogeneous Society: Arab minority Ultra-Orthodox Immigrants

Every Group Has It’s Special Needs and Demands

The Israeli Society

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High Overall Inequality Inequality among Ethnic Groups Center Vs. Periphery

Specific Attention and Pressure Groups

Inequality

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Parliamentary System

Proportional Voting

Low Threshold (2%) – Large Number of Parties

Political Instability, Coalition Regime

The Political System

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Until the 1970’s – A Centralized Mostly Planned Economy, Very Strong Labor Party

1977 – Political Change: • Towards a Market Economy, Fiscal Dispersal

1985 – The “Stabilization Plan”: • Return to Fiscal Control

Fiscal Rules:• 1992 – Deficit Reduction Law• 2005 – Limit on the Growth of Expenditure

Historical Background

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Sensitive Geo-Political Situation

Absorption of Immigration Political Instability

Irregularity in Expenditures

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Fiscal Rules are Keys to:oAchieve Fiscal Discipline o Increase Long-Term Stabilityo Improve CredibilityoSupport Public Sector

Efficiency

Fiscal Rules

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Simplicity Transparency Based on Actual Developments

rather then on Forecasts Credible Not Pro-Cyclical

Fiscal Rules- Principles

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Unique Political and Social Characteristics

Continuous Pressures on the Budget and Fiscal Stability

Importance of Keeping Fiscal Rules

Summary

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Thank you!