Friday, March 25, 2011

Sovereign Fiscal Responsibility: The Best & Worst Nations (List) *USA in Worst 10*

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Sovereign Fiscal Responsibility Index

Sovereign Fiscal Responsibility: The Best and Worst Nations

Stanford University graduate students along with the Comeback America Initiative CEO David M. Walker, former Comptroller General of the United States, developed and released a Sovereign Fiscal Responsibility Index on March 23, 2011. The policy brief stated the intent of the Sovereign Fiscal Responsibility Index is, "The goal of this project is to provide a simple but comprehensive analytic tool and framework for citizens, research institutions, and advocacy groups alike to use in understanding sovereign fiscal responsibility and sustainability. It is specifically intended to illustrate where the United States is, where it is headed, and how it compares with other nations in the area of fiscal responsibility and sustainability." A total of 34 countries were analyzed, including the 30 member countries of the Organization of Economic Co-operation and Development (OECD) plus the 4 BRIC nations (Brazil, Russia, India, China). Below is a listing of these 34 countries by their Sovereign Fiscal Responsibility Index, from best to worst.

Sovereign Fiscal Responsibility Index

Sovereign Fiscal Responsibility Index (March 23, 2011) The 34 nations analyzed, from best to worst, are:
Best 10
1    Australia
2    New Zealand
3    Estonia
4    Sweden
5    China
6    Luxembourg
7    Chile
8    Denmark
9    United Kingdom
10  Brazil
Middle 14
11  Canada
12  India
13  Poland
14  Netherlands
15  Norway
16  Slovak Republic
17  Korea
18  Mexico
19  Israel
20  Slovenia
21  Austria
22  Finland
23  France
24  Spain
Worst 10
25  Germany
26  Belgium
27  Italy
28  United States
29  Hungary
30  Ireland
31  Japan *
32  Iceland **
33  Portugal
34  Greece

* Japan's debt rating has just been downgraded.
** Iceland has already defaulted and its Sustainable Fiscal Path reflects reforms made since default occurred.

About the Sovereign Fiscal Responsibility Index

Our definition of fiscal responsibility involves three factors: a government’s current level of debt, the sustainability of government debt levels over time, and the degree to which governments act transparently and are accountable for their fiscal decisions. This implies that responsibility is more than managing one’s annual deficits. Creating sound institutions, rules, and procedures that regulate the budget process are essential.

In addition, the existence of appropriate enforcement mechanisms is also important to ensure compliance. Many studies have shown that in the long run, governments need fiscal rules, transparent institutions, and effective enforcement to remain fiscally responsible.

We derive the SFRI from this definition and create three major components of the index. We measure current government debt levels and consider a country’s fiscal space. We assess the sustainability of government debt levels over time by looking at a country’s fiscal path. Lastly, in determining degree of transparency and accountability, we evaluate each country’s fiscal governance, including the current rules and institutions in place to check for responsible fiscal decision making.

About the Authors

T.J. Augustine, Alexander Maasry, Damilola  Sobo, and Di Wang are graduate students in the Public Policy Program at Stanford.  David M. Walker is founder and CEO of the Comeback America Initiative and former comptroller general of the United States. This graduate team prepared this report on A Sovereign Fiscal Responsibility Index as part of the graduate Practicum in Public Policy, a two quarter sequence required for Master's students in both the Public Policy and International Policy Studies Programs.  The client for this project was the Honorable David Walker, founder and CEO of the Comeback America Initiative (CAI) and former comptroller general of the United States. The full report can be obtained from the Public Policy Program at Joe Nation served as the instructor and an advisor for this research team and directs the graduate student Practicum at Stanford University.  He teaches climate change, health care policy, and public policy. Nation represented Marin and Sonoma Counties in the State Assembly from 2000-2006.  He received a Ph.D. in Public Policy Analysis from the Pardee RAND Graduate School; his graduate work focused on budget modeling and long term budget projections.

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