Demographic change is one of the most important challenges for public finances in future. In the absence of counteractive measures, the increasing demand for expenditures from an ageing society
will inevitably lead to a debt crisis in many European countries. Nevertheless, the impressive budget consolidations in some industrialized countries show that a reversal is possible.
In view of the need for budget consolidation, Professor Uwe Wagschal at Ruprecht-Karls-Universitat in Heidelberg examines what factors can explain the successful budget consolidations in 23
OECD countries between 1980 and 2005. The international comparison shows how a successful budget consolidation can be achieved through a combination of expenditure cuts and revenue increases -
accompanied by reforms of the political institutions.
