The thirteenth Geneva Report on the World Economy examines the fiscal woes of the US, the EU and Japan. Each faces serious medium term challenges, but they have arisen in different ways and admit of no common solution. Faster growth would help in each case: Japan’s difficulties have arisen in part from two decades of slow growth, and it would be easier to stabilise debt burdens in both the US and the EU if growth were to pick up. But growth alone won’t resolve the problems. In Japan, the report argues, the level of social benefits paid to older people is far too high, squeezing out many other forms of government spending as a result.
Reducing these benefits is difficult: older people tend to live in rural areas, which are overrepresented in the Diet. In the US, on the other hand, part of the problem is insufficient tax revenue, another part of the problem is an inefficient health system, but the checks and balances built into the US political system have so far made it impossible to agree on adequate measures. In Europe the problem is different again: government expenditure has tended to be high in Europe, but member states have little incentive to balance their books because they think will be bailed out when difficulties arise.