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By virtue of their success in growth and development, a number of economies have been transformed to ‘advanced’ countries, and they may offer lessons to today's developing economies. Even though the performance among these countries was rather uneven during the recent 2008–10 global financial crisis for instance, it would be myopic to focus on the concomitant country performance as an indicator of success or lack thereof. Employing historical accounts, the current volume is able to point out useful aspects of each country's development record within a longer-term perspective. Many other studies have focussed on countries in the developing world as ‘role models’ for other developing economies since such successful countries' experiences have been relatively recent. As useful as those case studies are, they nonetheless omit potentially useful lessons from the more advanced countries which exhibit longer development records

This chapter examines the state of fiscal accounts in advanced and emerging market economies from the postwar period until the outburst of the 2007 financial crisis, revealing some early symptoms of fiscal profligacy that eventually degenerated into fiscal stress. In G7 countries, general government expenditures grew persistently, from 25 percent of GDP in 1950 to 40 percent in the early 1990s. Initially, increasing expenditures were paid for by increasing revenues, but these were eventually accommodated by wider deficits and growing debt. After reaching a postwar low of 35 percent of GDP in the mid-1970s, helped by a negative interest-rate growth differential, the debt-to-GDP ratio stood at 84 percent by the time the crisis erupted. The reduction in fiscal deficits in advanced economies just before the crisis reflected largely temporary factors: equity prices added about 1.5 percent of GDP to revenues in advanced G20 countries, while housing prices, at their peak prior to the crisis, improved revenues in several European Union countries by about 2 percent of GDP.

The fiscal consequences of skilled immigration and perceptions thereof are relevant to public attitudes about immigration. This chapter offers a sophisticated analysis of this issue in the wider setting of interactions among fertility, migration, and fiscal policies, drawing together the empirical and theoretical findings from several studies relating especially to western Europe. It emphasizes the fiscal implications of age-imbalanced demographic structures in advanced economies, the impacts of these imbalances on age-sensitive expenditure and revenue systems, and the prospects for fiscal adjustment along demographic, tax, and expenditure policy margins in a global economy characterized by increased competition for mobile capital and labor.

This chapter examines how countries employed activist fiscal policies in response to the sharp decline in global growth following the financial crisis of 2007. In particular, it provides an in-depth analysis of the timing, size, and composition of fiscal stimulus packages in advanced and emerging market economies as well as the issues related to their implementation. It first summarizes some of the empirical evidence on whether an expansionary fiscal policy response was appropriate. It then shows that public debts increased dramatically from 2008 to 2010, especially in advanced economies. The substantial rise in fiscal deficits and debt ratios was not caused primarily by the fiscal stimulus, but by a decline in government revenues and, to a lesser extent, government support to the financial sector. Although fiscal stimulus packages varied across countries, these differences were generally consistent with each country's economic fundamentals, including available fiscal space, the severity of the downturn in domestic economic activity, the ability and space to use monetary policy, and the degree of trade openness that dilutes the effect of fiscal stimuli on the domestic economy.

This chapter talks about how American women, like their counterparts in other advanced economies, have narrowed or even reversed the gap in important resources that form the prerequisites of political participation. Women have become reliable voters and civic activists; in other words, they are the foot soldiers of democracy. However, women have not turned their growing progress along the pathways to political participation into commensurate political influence. The chapter also shows how the United States has experienced a shrinking gender gap in workforce participation, occupational status, and income. When it comes to the single most important antecedent of participation, namely, education, American women have even achieved a higher level than men.

This chapter examines public spending on pensions and health care as well as the rapid growth and projected increase of these costs in relation to GDP in advanced and emerging economies over the next two decades, suggesting that such increases will add to the already urgent need for fiscal adjustment in many countries. It first presents projections for spending in both public pensions and health care for twenty-eight advanced and twenty-two emerging economies before discussing reform options to improve the long-term sustainability and performance of public pension and health care systems while safeguarding the most vulnerable. For countries with large projected spending increases and limited fiscal space, the challenge is to contain the growth of public pension and health spending without adversely affecting the social objectives of these programs. The viable options to contain pension spending include curtailing eligibility, reducing benefits, or increasing contributions. While all of these options involve apparent trade-offs, increasing the retirement age has many advantages. Containing public health spending requires a mix of macro-level controls, such as imposing budget caps, and microlevel efficiency-enhancing reforms, such as strengthening market mechanisms.

Using scenario analysis, this chapter examines the fiscal challenges facing advanced and emerging economies. The 2007 financial crisis left many countries, especially advanced economies, with a dangerous combination of high debt and high fiscal deficits. Over the medium term, even as crisis-related measures are unwound, headline deficit-to-GDP ratios are not expected to return to pre-crisis levels without fiscal adjustment measures. Although revenues are expected to recover from their current cyclical weakness, they are not projected to resume their original (pre-crisis) path because of what has been regarded as a permanent loss of potential GDP. Overall balances are expected to narrow only gradually, while debt ratios are expected to remain high over the medium term. Debt is expected to take a downward path in emerging economies, supported by relatively strong GDP growth, but this positive outlook is tempered by relatively benign assumptions regarding interest rates and growth trends. In general, all countries face important risks that could derail debt reduction, including policy implementation challenges, greater macroeconomic uncertainty, and the possibility that large contingent liabilities materialize.

This chapter examines the ongoing debt crisis in advanced economies in historical perspective, with a view to identifying significant drivers of debt accumulation and subsequent debt reductions. The findings indicate that the Great Accumulation episode of the 2000s reflected a combination of primary fiscal deficits, higher real interest rates, and stock-flow adjustments related to the banking and currency crisis, while unfavorable interest-rate growth differentials contributed to the debt accumulation of the Great Depression during the 1930s. For large debt reductions since 1880, the primary fiscal balance did the heavy lifting, except in the post-World War II period, when negative interest-rate growth differentials in the context of capital controls and financial repression contributed favorably.

This chapter presents empirical data on long-term trends in growth and income inequalitybefore discussing the nature, main features, and immediate and underlying determinants of long-term growth. It reviews the origins of income differences among world citizens by making reference to colonial history, pre-existing feudal institutions in low-income countries, and differences in growth rates between developed and developing countries. It subsequently presents the long-term growth models developed for the industrialized countries, including the Harrod–Domar model, the neoclassical exogenous growth models of Solow and Mankiw–Romer–Weil, the endogenous growth models of Romer and Aghion–Howitt, and the Unified Growth Theory. It provides also a brief comparison of the main features and dynamic properties of each model.

The chapter discusses different formulations of the main behavioural equations for private consumption, investments, and money demand that are used in the advanced economies for building a short-term Keynesian aggregate demand model, and the IS-LM, AS-AD, and Mundell–Fleming models. These models are used to study the formation of the level of income over the short term in the advanced countries, under both open and closed economy conditions. As such, these models allow us to study the fluctuations of the level of income over the short term due to exogenous factors or policy shocks, for example expansionary or contractionary fiscal policies, monetary and wage policies, or changes in consumer and investor expectations. The chapter identifies the conditions implicit in such models for the success of expansionary policies in advanced countries.

This chapter examines the strategic coupling of East Asian firms with the global production networks (GPN) of advanced industrialized economies through industrial market specialization. In both industries, the developmental state performed a classic role of the “big push” during the initial phase of their development in the 1970s and the 1980s. These initial public subsidies and state-directed investments could help domestic producers quickly upscale to low-cost leaders in the global market. Their eventual domination in both industries since the 2000s and beyond was no longer based simply on these scale economies, but rather on new advantages developed through firm-specific technological and organizational innovations. The chapter discusses how in this partnership, leading East Asian firms have acquired unique competitive advantages on the basis of new in-house process and product technologies in shipbuilding and semiconductor production.

This chapter examines the extent to which large public debts will adversely affect investment, productivity, and growth. Drawing on data from a panel of advanced and emerging market economies in the period from 1970 to 2008, it shows that initial debt is inversely related to subsequent growth, controlling for other determinants of growth. On average, a 10 percentage point increase in the initial debt-to-GDP ratio is associated over the medium to long run with a slowdown in real per capita GDP growth of approximately 0.2 percentage points per year, with the impact somewhat smaller in advanced economies than in emerging market economies. Some evidence indicates nonlinearity, with higher levels of initial debt having a proportionately larger negative effect on subsequent growth. Moreover, when a country's economic and financial position vis-à-vis the rest of the world is weak or the share of its foreign currency-denominated debt is large, the adverse impact of initial public debt on subsequent growth tends to be much more pronounced than when these factors are at more moderate levels.

This chapter examines what the goal of fiscal adjustment should be and the extent to which other nonconventional measures can help in restoring and maintaining market confidence in advanced economies. It first considers the reasons why fiscal adjustment cannot be delayed before discussing the role of fiscal policy. It then explores whether other policies (beyond the fiscal arena) can support consolidation efforts. It argues that despite considerable adjustment, many countries still have a long way to go, making it essential to calibrate the pace of adjustment for the long haul. In particular, it highlights the role of central banks by implementing supportive monetary policies and ensuring the proper working of credit markets. It suggests that financial repression (with or without inflation) is unlikely to produce a large payoff as a captive domestic investor base may be difficult to achieve in a globalized world. It also assesses the privatization of nonfinancial assets and its potential to reduce the debt burden and concludes with an analysis of the implications of debt restructuring, especially if public debt is in the hands of domestic residents.

In the backdrop of economic trends during 2000–6, this chapter gives a synoptic account of the global economic developments during 2007–13. This seven-year period 2007–13 witnessed various crises—the sub-prime crisis in the US, leading to global financial crisis, finally culminating in the great recession of 2009. Countries all across the world undertook simultaneously coordinated monetary and fiscal stimulus, and growth resurfaced in 2010 led by a number of countries in developing Asia (primarily China). But this resurgence of growth was transitory, uneven, and fragile and the recovery was punctured subsequently in 2011–12 with the emergence of euro area debt crisis. A number of reasons may be identified behind the emergence of the euro area crisis, such as unsustainable fiscal position and high current account deficit in some of these economies. There are indications that 2014 will witness some improvements in the euro area.

Crises come in various forms, and their impact is not predicable with much accuracy. Crises in emerging markets are not the same as those in advanced economies. By 2007, the idea that monetary policy ought to be rules-based was widely accepted and copied around the world. Policymakers believed that inflation and macroeconomic slack were all that mattered. Demographic and structural factors were underappreciated. The wrong conclusions are now being drawn: rules should not be abandoned, but monetary policy can be improved. Monetary policy now relies more on words. An expansion of central bank balance sheets has taken place and central bank independence is a quaint idea. Central banks no longer influence just prices; they also change financial system quantities. This leads to rising policy uncertainty. Central banks stand accused of hubris, with little clear idea of the “new normal” and how this will redefine a future monetary policy strategy.

This chapter touches on the progress and prospects for financial and macroeconomic policy coordination. There has been progress in the area of international financial stability, particularly in the design of the reform measures among the standard setting bodies (FSB, Basel, IOSCO). The chapter cautions however against national strategies that are independent of global arrangements, as these may result in more fragmented markets and would represent a retreat from globalization. In the area of macroeconomic policy, there have been efforts at cooperation and collaboration among emerging market economies (EMEs), but little progress has been made between the advanced economies and the EMEs.

This chapter defines the field of investigation and the main issues analysed by short-term, demand-side macroeconomics and long-term growth models in the now advanced economies. It presents also the set of accounting relations (for the production, uses, and distribution of income, for the balance of payments, and for the macro financial accounts) that are used to describe the functioning of the macroeconomy, and to assess its performance. Finally, it discusses briefly the context and historical evolution of macroeconomic theory during the last two centuries, by referring to the classical, Keynesian, neoclassical synthesis, monetarist, new classical, and structuralist macroeconomic approaches.

This chapter argues that the Third Way's policy goals can be reconciled if a radical new approach is applied to the organisation of services, both commercial and public. Services now supply around 70 per cent of employment in advanced economies, and they comprise every aspect of economic activity, from the highly rewarded financial services to domestic and personal services such as hairdressing, social care, and cleaning, which are among the lowest-paid occupations. The crucial question is whether moral regulation through cultures of social value, nurturing and shaping the ‘social brains’ of participants, can replace the discredited contractual regulation of Third Way policies on a range of issues in public health, community education, and the physical environment. The discussion argues that the crash has already provided evidence that, given a more favourable organisational context and some additional resources, it can.