Stabilization and Liberalization in the Israeli Economy

Stabilization and Liberalization in the Israeli Economy

Paul Rivlin (Tel Aviv University, Israel)
DOI: 10.4018/978-1-4666-9548-1.ch022
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Abstract

This chapter examines the stabilization programs of 1985, 2003, other changes in fiscal policy and the liberalization of the Israeli economy. These programs have had dramatic effects in terms of reducing inflation, encouraging growth and improving the balance of payments and the structure of the economy. At the same time, they have reduced the role of the state and have been accompanied by growing inequality and an increase in relative poverty that resulted in an increase in transfers to households and a squeeze on other public spending.
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Introduction

The achievements of the Israeli economy over the last three decades have been impressive despite severe problems, especially in the 1980s. The population increased from 3.9 million in 1980 to 8.1 million in 2013 while GDP rose from $73 billion to $291 billion in 2013 (in 2013 prices and exchange rates). As a result, GDP per capita almost doubled from $18,000 to $35,925.

Table 1 shows that since the early 1980s the Israeli economy has also experienced major structural change. Between 1981 and 2013, the share of public spending in GDP fell by 33 percent while public sector revenues fell by just over twenty percent. As a result, the public sector balance moved from an average annual deficit of 9.8 percent of GDP in 1981-85 to 3.7 percent in 2009-2013. The ratio of domestic debt to GDP more than halved from almost 149 percent in 1983 to just under 62 percent in 2013

Table 1.
The budget and the debt, 1980-2013 percent of GDP
YearTotal ReceiptsTotal
Expenditure
Total
Deficit
Total Net Domestic Debt, Year End
198059.0-11.5
198156.772.8-16.1
198257.569.5-11.9
198358.564.4-5.9148.8
198453.668.8-15.3135.4
198564.564.50.0144.5
198662.559.72.7133.8
198756.857.3-0.6121.9
198853.156.3-3.2121.2
198949.555.6-6.1126.3
199049.254.8-5.7114.4
199149.153.4-4.399.6
199248.754.3-5.6100.5
199348.753.5-4.894.2
199447.851.3-3.484.8
199544.549.1-4.678.2
199643.849.3-5.575.2
199744.748.9-4.277.0
199843.747.8-4.074.6
199943.446.9-3.573.5
200043.645.1-1.467.6
200143.547.5-4.076.6
200243.548.4-4.981.6
200342.147.9-5.885.9
200441.245.3-4.183.9
200540.943.4-2.579.0
200642.143.1-0.971.9
200741.341.5-0.364.0
200838.640.7-2.164.6
200935.741.0-5.366.3
201036.540.1-3.663.4
201136.739.4-2.762.2
201235.439.2-3.961.7
201336.239.4-3.261.9

Source: Bank of Israel Annual Report (2013) and author's calculations.

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