Executive Summary Assessment and Recommendations Chapter 1. Challenges Facing the Austrian Economy -Recent Economic Performance and Outlook -Trend Growth is Stronger than in the Euro Area -But Growth Performance Can and Should Be Further Improved -Mismatches in the Labour Market -Productivity and Employment Lags in Inward-Oriented Sectors -Weaknesses in the Domestic Regulatory and Tax Framework -Four Issues Investigated in the Survey -Annex: Follow-Ups to the Recommendations of the 2005 OECD Economic Survey of Austria Chapter 2. Austria's Deepening Economic Integration with Central and Eastern Europe -Growing Economic Integration with Central and Eastern Europe -Positive Overall Impact on Aggregate Output and Employment -Some Segments of the Population and Workforce Have Been Adversely Affected -Regional Integration Has Given a Boost to Productivity, Competitiveness, and Profitabilty -Austria's Attractiveness as a Regional Base for Multinationals Needs to be Maintained -Policies Can Help Maximize the Benefits and Lower the Adjustment Costs of Regional Integration Chapter 3. Overcoming Labour Market Segmentation -Employment of Skilled, Prime-Aged Workers Remains Vigorous -Groups at the Margin of the Labour Market Do Less Well -The Government Has Responded to Performance Gaps -Policy Recommendations Annex 3.A1. Recent and Planned Measures to Foster Labour Supply Annex 3.A2. Recent and Planned Measures to Stimulate Labour Demand Chapter 4. Improving Innovation -Assessing Austria's Innovation Performance -Improving Framework Conditions for Innovation -Recent Innovation Policy Initiatives and Suggestions for Further Reform Chapter 5. Rationalizing Fiscal Policy and Strengthening Public Expenditure Management -On Unchanged Policies Austria's Debt is Projected to Rise Significantly over the Long-Term. -A Key Fiscal Challenge is to Contain Public Spending on Health Care and Pensions -The 2007-08 Budget Identifies Areas for Higher Public Spending -A Fiscally Sustainable Reduction in Tax Rates Will Likely Require Further Expenditure Cuts -The Structure of Taxes Can Be Made More Conducive to Growth and Employment Creation -Budgetary Reforms Can Help to Strengthen Management of Public Finances -Reforming Fiscal Federal Relations Can Promote Better Governance and Public Administration -The Policy Conclusions are Wide-Ranging but Straightforward