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How does the Political Context in Israel Constrain which Fiscal Rules are Best? Yarom Ariav Director...
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Transcript of 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!