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The IMF is aiming to provide more consistent guidance on the fiscal space available to countries to either cut taxes or increase spending.
A new paper released by the Fund puts forward a set of tools to assess available fiscal space in a way that is broadly comparable across countries and provides IMF staff, and policymakers, with "a consistent approach to assessing available space as an input to inform decisions about fiscal policy."
The IMF explained that the concept of fiscal space can be defined as the ability of a government to raise spending or lower taxes without endangering market access and debt sustainability.
The new framework will be applied initially in Article IV consultations of about 40 major economies. These Article IV reports are released annually for nations, reviewing performance in the past 12 months and putting forward policy recommendations, including on tax and spending.
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