Towards a Political Economy of Zero Budgeting in Austria

The EMU sets new standards for public finance. In particular, the Stability and Growth Pact aims at a budget ``close-to-balance or in surplus'. Austria is lagging behind in this respect. First, this paper discusses the reasons for that. Then, two scenarios of budget consolidation are analyzed with the Wifo macroeconomic model. In the case of the crash-scenario, which balances the budget already in 2002, the pure Keynesian solution would result in a decline of real GDP of 1% after six years. The precautionary consolidation scenario (balanced budget in ten years) would result in a real GDP loss of only 1/2%. With supply-side effects (incentives for investment due to privatization and UMTS licences sales or credibility effects), real GDP declines only by 1/3% in both scenario. Taking a consolidated view of the tax reform 2000 and the budget consolidation, on balance, the overall effects are rather positive than negative.     

Macroeconomic effects of fiscal policy in Pakistan: a disaggregate analysis

This study analyzes the macroeconomic effects of fiscal policy on macroeconomic variables in Pakistan. The study utilizes VAR framework and uses quarterly data of Pakistan from 1976Q1 to 2017Q4. The results showed that after an increase in government expenditures, private consumption and prices take three quarters to increase, while private investment follows the declining trend. Private consumption and interest rate are negatively related with taxes, while private investment and prices are positively related with taxes. Real GDP, private consumption and interest rate respond positively with an increase in developmental expenditure, public consumption and public investment. Private investment is negatively related with development expenditure, public consumption and public investment. An increase in direct tax as well as indirect tax leads to an increase in real GDP, private investment and interest rate, while private consumption takes three to five quarters to responds. Private investment and prices are positively related with non-tax revenue, while real GDP, private consumption and interest rate are negatively related. These results support the Keynesian view that government expenditure and taxes are useful tools to stimulate the economic activity, while crowding-out hypothesis holds in Pakistan as well. An active and efficient role of government is required for macroeconomic stability.     

A Note on the (Un)Pleasant Arithmetic of Fiscal Policy: The Case of Italian Public Debt

Using the simple arithmetic of government budget constraint, we perform an illustrative analysis on the Italian case, investigating the consequences on the main public finance aggregates of the adoption of a fiscal policy rule responding to past real debt/GDP ratio. Such a rule, firmly grounded in the economic analysis, would allow the reduction of Italy's outstanding stock of debt without requiring the strict adherence to the 3 per cent criterion for deficit/GDP ratio, as prescribed by SGP (Stability and Growth Pact). We perform a forecasting exercise under five alternative scenarios and analyse the details of a structural debt reduction strategy with alternative yearly step.     

An empirical investigation into the impact of US federal government budget deficits on the real interest rate yield on intermediate-term treasury issues, 1972–2012

This study provides new empirical evidence on the impact of the federal budget deficit on the real interest rate yields on intermediate-term debt issues of the US Treasury, represented herein by the ex post real interest rate yields on 3-year Treasury notes and 7-year Treasury notes, two interest rate measures that have received essentially no attention in the economics and finance literature in recent years. This study is couched within a loanable funds model that includes two ex post real interest rate yields, the monetary base as a per cent of GDP, the change in per capita real GDP, net financial capital inflows as a per cent of GDP and the budget deficit as a per cent of GDP. This study uses annual data for the study period 1972 to 2012, a time period that includes ‘quantitative easing’ monetary policies by the Federal Reserve. Two-stage least squares estimations reveal that the federal budget deficit, expressed as a per cent of GDP, exercised a positive and statistically significant impact on the ex post real interest rate yields on both 3-year and 7-year Treasury notes, even after allowing for quantitative easing and other factors. The study also considers the time period 1980 to 2012 and offers simple robustness testing.     

Fiscal space on the eurozone periphery and the use of the (partially) balanced-budget multiplier: The case of Spain

This article adopts the “functional finance” approach to consider the utilization of expansive fiscal policies in the members of the European Monetary Union most affected by high unemployment. As they do not have their own monetary policy, fiscal deficits require the issuing of public debt without the support of the central bank. The authors consequently incorporate the notion of a (partially) balanced-budget expansion to achieve the desired stimulus in gross domestic product (GDP) with the least possible effect on public debt. Their proposal is only a sort of “imperfect” balanced-budget expansion: It is based on the idea that simultaneous increases in public revenue and expenditure can boost GDP, but without any pretension of keeping public deficit unchanged. Specifically, the authors use the case of Spain to show that a more expansive fiscal policy is desirable on economic grounds, and that only institutional constraints prevent it. They do it presenting two alternative scenarios for the coming years and analyzing their different impact on unemployment and fiscal sustainability. The first represents a firm commitment to budget consolidation, whereas the second is based on this “imperfect” application of the balanced budget multiplier. The main conclusion is that a more expansive fiscal policy is perfectly compatible with finance sustainability.     

Sustainability of public debt,public capital formation,and endogenous growth in an overlapping generations setting

Under the golden rule of public finance for public investment with a constant budget deficit/GDP ratio, we show that for the sustainability of government budget deficits there is a threshold of the initial public debt for a given stock of public capital, and that this threshold level of public debt is increasing in the stock of public capital. If the initial public debt is greater than the threshold, the government can no longer sustain budget deficits, while if it is smaller, the government can conduct a permanent deficit policy, which eventually leads to a positive public debt/GDP ratio.     

公共支出转型及其对经济发展影响的协整分析

基于政府职能转变视角,考察了公共支出转型中规模与结构变化,并对其经济发展效应进行了协整分析。研究发现:我国公共支出已经由经济建设型转向公共服务型;预算内经济建设支出的名义GDP占比与经济发展水平之间存在较显著的正相关关系;预算内公共服务支出的名义GDP占比与经济发展水平显著负相关;预算内支出的名义GDP占比与经济发展水平为反向变动关系;基本公共服务支出长期能够促进经济发展。     

The international spillover of china’s monetary policy: a case study of a developing country

This paper aimed to investigate the evidence on the transmission of China’s monetary policy shocks to macroeconomic variables in Iran. Since 1990, China has become one of the main trading partners of Iran; therefore, it is expected that China’s macroeconomic shocks have some consequences on Iran’s Economy. In this study, a structural vector autoregressive model is used to explore such a transmission. The findings of the study reveal that the China’s monetary policy changes significantly affect the Consumer Price Index (CPI) as Iran’s CPI meaningfully increases with the expansion of China’s money supply. Furthermore, it was found that Iran’s other economic variables, including the real GDP, real effective exchange rate, and interest rate, do not significantly reflect the China’s monetary shocks; even though confirm the expected sign and direction.     

A nowcasting model for Ecuador: Implementing a time-varying mean output growth

We propose a model to nowcast the annual growth rate of real GDP for Ecuador, whose economy lacks timely macroeconomic information for some key variables and has gone through unstable periods due to its dependence on oil exports. Our specification combines monthly information for 30 macroeconomic and financial variables with quarterly information for real GDP in a mixed-frequency approach. Our setup includes a time-varying coefficient on the mean annual growth rate of output to allow the model to incorporate prolonged periods of low or high growth. The model produces more accurate nowcasts of real output growth in pseudo out-of-sample exercises than a nowcasting model that assumes a constant mean real GDP growth rate. We also conduct sensitivity analyses on our nowcasting model within the time-varying mean setup and find that including financial variables can be detrimental to the performance of the proposed model.     

Forecast accuracy of small and large scale dynamic factor models in developing economies

Developing economies usually present limitations in the availability of economic data. This constraint may affect the capacity of dynamic factor models to summarize large amounts of information into latent factors that reflect macroeconomic performance. This paper addresses this issue by comparing the accuracy of two kinds of dynamic factor models at GDP forecasting for six Latin American countries. Each model is based on a dataset of different dimensions: a large dataset composed of series belonging to several macroeconomic categories (large scale dynamic factor model) and a small dataset with a few prescreened variables considered as the most representative ones (small scale dynamic factor model). Short‐term pseudo real time out‐of‐sample forecast of GDP growth is carried out with both models reproducing the real time situation of data accessibility derived from the publication lags of the series in each country. Results (i) confirm the important role of the inclusion of latest released data in the forecast accuracy of both models, (ii) show better precision of predictions based on factors with respect to autoregressive models and (iii) identify the most adequate model for each country according to availability of the observed data.     

How markets will drive the transition to a low carbon economy

This paper investigates the driving factors behind the transition to a low carbon economy. Here, we offer a two-part analysis: First, we examine the factors leading to the current level of cleantech development. To do so, we examine the impact of country-level economic variables (real GDP, market return, and turnover) and country-level institutional variables on patent intensity. Results from this analysis show that cleantech patenting activity is fostered by a supportive institutional environment that promotes innovation and low-carbon development through carbon pricing policies, country-level public R&D expenditure and human capital. Second, we extend the notion of ‘path creation’ to map out different pathways for cleantech development on a country-level within a real options framework, and offer a corresponding valuation of cleantech patents. Our estimates of total wealth creation through the development of cleantech patents by 2050 range from US$10.16 to US$15.49 trillion dollars (13%–20% of the world GDP in 2017) with investment growth from US$2.93 to US$3.71 trillion (3.7%–4.7% of the world GDP in 2017). The results from our analysis suggest that market forces will drive the transition to a cleantech economy.     

Cyclicality of Fiscal Policy in Latin America over the period 1990 ‐ 2015

Latin American countries experienced important changes in the 2000s. The implementation of fiscal reforms, public debt reduction and the high level of accumulated reserves gave them more policy space than in the past. As a result, Latin American countries were able to implement countercyclical policies to face the negative economic and social consequences associated with the recent macroeconomic shock. Some countries performed better than others. In particular, Social Democratic and Centrist governments enjoyed more fiscal space; they had realized larger budget surpluses over the good years and were able to cope with the crisis without impairing their fiscal conditions. Yet, Latin America has experienced a public finance deterioration in the most recent years. While governments are showing an increasing ability on taxation they are still facing some problems on the expenditure side. As a result, fiscal policy returned acyclical after the period of the crisis. The sustainability of public accounts may be strengthened increasing tax pressure on the richest, reducing tax evasion and improving current spending efficiency. However, the increasing political problems are putting many questions about future trends of public finance in the region.     

A neoclassical analysis of the Korean crisis

In late 1997, Korea experienced a huge and unusual economic crisis. The three main features of this crisis are the sudden recession, the rapid recovery and a consumption drop as large as the output drop. A large body of literature qualitatively explains the Korean crisis in terms of financial and monetary variables such as exchange rates and interest rates. This paper complements these studies by quantitatively analyzing fluctuations in real macroeconomic variables such as real GDP and consumption. A stochastic small open economy neoclassical model can quantitatively account for the Korean crisis taking TFP and real interest rates as exogenous.     

Balanced-Budget Rules: Welfare Loss and Optimal Policies

Most economic models do not suggest an optimal fiscal policy in which the government's budget is balanced each period. Conventional wisdom suggests that the government run surpluses and deficits to smooth taxes. In this paper, I use an approach which brings together real business cycle theory and the theory of public finance to evaluate the effects of a balanced-budget restriction. Four fiscal policies are investigated in a model with growth. All models are solved numerically using a multidimensional collocation parameterized expectations algorithm. The welfare consequences of each policy are measured, and the optimal Ramsey policies are characterized. Journal of Economic Literature Classification Number: E62.     

Give Macroeconomic Stability and Growth in Russia a Chance

This paper identifies and investigates conceptual and empirical links among Russia's disappointing growth performance of the mid-1990s, its costly and eventually unsuccessful stabilization, the macroeconomic meltdown of 1998 and the spectacular rise of non-payments. Non-payments developed into a system that flourished in an atmosphere of fundamental inconsistency between a macroeconomic policy geared at sharp disinflation and a microeconomic policy of bailing-out enterprises through soft budget constraints. It embodies a large volume of untargeted, implicit subsidies in the order of 7–10 per cent of GDP, which has stifled growth, contributed to the 1998 meltdown through its impact on public debt and made at best a questionable contribution to equity. The overwhelming priority at this point is to dismantle this system, thereby promoting enterprise restructuring and growth (by hardening budget constraints) and medium-term macroeconomic stability (by reducing the size of the subsidies).     

中国公共预算研究的财政学视角考察

中国财政学对公共预算问题的研究,未能融合经济学的分析范式,也未实现必要的＂市场细分＂.近期的研究取向可以从以下方面加以谋划：组建＂中国公共预算研究会＂;尽快完成中国近代预算史的抢救性研究与实现预算术语统一化;按照正确的顺序继续推进＂三部曲＂的预算规范化进程.     

National Income Accounts: Measurement, Practice, and Welfare Implications of the Initial Estimates of Kosovo's GDP

This article reports estimates of Kosovo's GDP for 2000 based on a survey of household expenditures, the UN's government budget, customs data, and projections of international donor organizations' assistance and investment. Estimated per capita GDP was in the range of $1135–$1185, nearly three times the $400 World Bank estimate that had been conventionally used to guide policy and technical assistance designs. The article discusses the sources of the data, provides checks from macroeconomic theory on their credibility, and prescribes statistical resources and policies to ensure a more systematic and conventional tracking of Kosovo's future aggregate economic activity.     

弱势下的扩张:中国财政状况和政策取向分析

目前以预算内财政收入计算的财政规模很低,但这一指标并没有全面反映我国财政的规模,真实的财政规模其实相当大。用“积极的财政政策和稳健的货币政策”概括1998年以来的宏观调控有失公允,为确保经济增长,中央政府实际上调动了包括货币政策在内的所有政策资源刺激经济。目前,我国债务规模在可控范围之内,真正决定积极财政政策取向的是财政项目的效益等因素,我国积极财政政策已经转向谨慎。正在实行的财政政策有两个显著特点,一是推进公共财政体系建设,这是由我国经济体制改革的总体目标设定的;二是在实行积极财政政策的同时,增加税收,这反映了财政在加强自身建设的同时(提高财政两个比重),竭力完成宏观调控目标的努力。这两个看似矛盾的政策,统一在当前的财政政策中,恰当地反映了转型期财政必须应对的多重目标。     

Impact of fiscal policy in an intertemporal CGE model for South Africa

This paper uses an intertemporal computable general equilibrium model to investigate the consequences of an expansive fiscal policy designed to accelerate economic growth in South Africa. A key contribution is made to existing literature on the transmission mechanism of fiscal policy in African economies. To the best of our knowledge, no published study has empirically analyzed the macroeconomic effects of fiscal policy in the context of an open, middle-income sub-Saharan African economy like South Africa using an integrated intertemporal model with such disaggregated production structure. The paper shows that an expansive fiscal policy would have a temporary impact on gross domestic product (GDP) but would translate into higher debt relative to GDP. Using increased taxation to finance the additional spending would lessen this impact but would also negatively affect macroeconomic variables. Increased investment spending would improve long-term GDP, under any financing scheme, and would decrease debt-to-GDP ratio as well as deficit-to-GDP ratio. This outcome is driven by the positive impact infrastructure has on total factor productivity. Sensitivity analysis shows that these conclusions are qualitatively similar for wide values of the elasticity of the total factor productivity to infrastructure. In fact, the conclusions hold even when comparing different financing schemes.     

HOW CAN PUBLIC SPENDING HELP YOU GROW? AN EMPIRICAL ANALYSIS FOR DEVELOPING COUNTRIES

Although many studies indicate that both the level and composition of public spending are significant for economic growth, the results in the empirical literature are mixed. This paper suggests that the country sample selection and expenditure classification are important in explaining these conflicting results. The empirical analysis shows that the link between growth and public spending, especially its core component, is strong only for countries with macroeconomic stability and fast GDP per capita growth dynamics, which are also capable of using public funds for productive purposes.