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Ian W.H. Parry and Mr. Philippe Wingender
Finland has pledged to cut net greenhouse gas emissions to zero by 2035 and has sectoral targets for deploying electric vehicles, phasing out coal generation, and oil-based space heating. Fiscal policies at the national and sectoral level could play a critical role in achieving these objectives. Carbon dioxide emissions are already priced significantly in Finland but prices vary substantially across fuels and sectors. The paper discusses a reform to both scale up, and progressively harmonize, pricing while using revenues to address equity issues. It also discusses the potential use of revenue-neutral feebate schemes to strengthen mitigation incentives for the transportation, industry, building, forestry, and agricultural sectors.
Ezequiel Cabezon and Christian Henn
Based on a permanent income analysis, Gagnon (2018) has prominently suggested that Norway has saved too much, thereby free-riding on the rest of the world for demand. Our public sector balance sheet analysis comes to the opposite conclusion, chiefly because it also accounts for future aging costs. Unsurprisingly, we find that Norway’s current assets exceed its liabilities by some 340 percent of mainland GDP. But its nonoil fiscal deficits have grown very large (to almost 8 percent of mainland GDP) and aging pressures are only commencing. Therefore, Norway’s intertemporal financial net worth (IFNW) is negative, at about -240 percent of mainland GDP. As IFNW represents an intertemporal budget constraint, this implies that Norway’s savings are likely insufficient to address aging costs without additional fiscal action.
Mr. Dirk V Muir
Denmark, Finland, Norway, and Sweden form a tightly integrated region which has strong ties with the euro area as well as some exposure to Russia. Using the IMF’s Global Integrated Monetary and Fiscal model (GIMF), we examine spillovers the region could face, focusing on possible scenarios from the rest of the euro area and Russia, and the fall in global oil prices. We show that the spillovers from these scenarios differ in magnitude and impact, regardless of the high degree of integration among the four Nordic economies. These differences are driven by the fact that Denmark and Finland have no independent monetary policy, and Denmark and Norway are net energy exporters while Finland and Sweden are energy importers. We infer lessons for policy from the outcomes.
International Monetary Fund
Finland’s 2008 Article IV Consultation shows that spillovers from the global turmoil are adversely affecting activity and may weaken the financial system. From a cyclical perspective, a fiscal structural loosening is warranted. Its effectiveness in Finland’s small, open economy would be limited in the absence of an EU-wide fiscal package. The authorities have been confident that an EU-coordinated budget expansion is in the works. There has been agreement that loosening should be designed to minimize damage to long-term fiscal sustainability.
International Monetary Fund
The euro area recovered from the economic doldrums. Executive Directors welcomed the recovery, supported by strong financial conditions, global growth, and improved financial positions. They encouraged the reformed Stability and Growth Pact over fiscal policies, and underscored the need for accelerated fiscal consolidation and structural reforms. They pointed to the integrated National Reform Programs under the reformed Lisbon process and labor market reforms. Directors welcomed the progress in integrating Europe’s financial markets and the new Directive on Anti-Money Laundering and Combating the Financing of Terrorism.