Counting the Oil Money and the Elderly: Norway’s Public Sector Balance Sheet
By Ezequiel Cabezon (University of North Carolina (UNC) at Chapel Hill), Christian Henn (International Monetary Fund)
Based on a permanent income analysis, Gagnon (2018) has prominently suggested that Norwayhas saved too much, thereby free-riding on the rest of the world for demand. Our public sectorbalance sheet analysis comes to the opposite conclusion, chiefly because it also accounts forfuture aging costs. Unsurprisingly, we find that Norway’s current assets exceed its liabilities bysome 340 percent of mainland GDP. But its nonoil fiscal deficits have grown very large (to almost8 percent of mainland GDP) and aging pressures are only commencing. Therefore, Norway’sintertemporal financial net worth (IFNW) is negative, at about -240 percent of mainland GDP. AsIFNW represents an intertemporal budget constraint, this implies that Norway’s savings are likelyinsufficient to address aging costs without additional fiscal action.