Dynamic scoring: Alternative financing schemes

Neoclassical growth models predict that reductions in capital or labor income tax rates are expansionary when lump-sum transfers are used to balance the government budget. This paper explores the consequences of bond-financed tax reductions that bring forth a range of possible offsetting policies, including future government consumption, capital tax rates, or labor tax rates. Through the resulting intertemporal distortions, current tax cuts can be expansionary or contractionary. The paper also finds that more aggressive responses of offsetting policies to debt engender less debt accumulation and less costly tax cuts.     

MILITARY RECRUITING PROGRAMS DURING THE 1980s: THEIR SUCCESS AND POLICY ISSUES

This paper examines trends in military recruiting during the 1980s and estimates the contribution of various policy tools—pay, recruiters, advertising, and educational benefits—to military recruiting. The paper finds that using recruiters and advertising, for the Army at least, is the most cost-effective means of varying high-quality enlistments. The costs of educational benefits are more difficult to determine, but the paper finds that educational benefits have a significant effect on high-quality enlistments—particularly those for the Army.
The paper also examines the relationships among the different services' recruiting programs. The evidence is somewhat mixed but generally supports the view that positive spillovers exist among the services' recruiting programs.     

How Big Was the Effect of Budget Consolidation on the Australian Economy in the 1990s?

This article evaluates the effects of budget consolidation on the Australian economy in the 1990s. As the economy recovered from the 1991–92 recession, the need to improve the fiscal balance to lift national saving became the dominant influence on fiscal policy. The article argues that spending cuts by the Australian federal government announced in 1996 had immediate effects on financial markets, with reduced long‐term interest rates of about 50 basis points in 1996–97. Using a modified version of the Treasury macroeconometric model of the Australian economy (TRYM), the article simulates the net macroeconomic effects of the expenditure cuts, fiscal consolidation and lower long‐term interest rates. The article finds that the program of budget consolidation had a sizeable short‐ and medium‐term impact on the economy, raising Gross Domestic Product by up to three‐quarters of a percentage point and reducing unemployment by 0.3 percentage points over the next two to three years.     

The impact of the Indonesian income tax reform: A CGE analysis

This study evaluates the impacts of Indonesia's recent income tax reforms on key macroeconomic variables, as well as the impacts on poverty and income distribution. It was found that the reductions in personal income tax and corporate income tax increase economic growth under a balanced budget assumption. The policy reforms also lead to a small reduction in the incidence of poverty. However, the policies also lead to an increase in income inequality because the tax cut is more beneficial to households in the highest income categories. It is recommended that future tax cuts should target the urban and rural poor.     

未来25年全球政府债务展望:对经济和公共政策的影响

文章探讨了主要经济体以及全世界的长期财政前景。文章认为,如果当前的税率或政府的退休和卫生保健惠民工程没有发生变化,未来25年政府债务规模将在大多数发达经济体和许多新兴经济体中增长到危险和不可持续的水平。虽然对于主要的经济体来说,在经济增长不出现任何大的、出乎意料的负面震荡的情况下,危险区很可能还比较远,大约会发生在今后10～25年时间内,但如果允许政府债务继续增长,利率最终将上升,从而挤出生产性投资,降低经济增长率。严重的经济下滑有可能迅速推动政府债务水平上升到危险区间,并极大地增加爆发危机的可能性。因此,政策制定者现在就应该开始计划进程,将政府债务调整到可持续的轨道。当前计划中的预算削减应该延迟到2013～2015年执行,额外的预算削减措施也应该从2016年开始实行。此外,应该立刻在控制退休和医疗成本方面达成一致,认真解决这个威胁到增长的问题。     

Fiscal adjustments and economic performing: a comparative study

The empirical relationship among fiscal contractions, permanent improvement in public finances and short-run economic performance is examined using a sample of 14 European countries over the last three decades. The actual experience of policy-making has taught that only the adjustments that relied heavily on primary expenditure cuts and were implemented over a relatively long time span were able to achieve a long lasting reduction of public liabilities. Indeed, during these consolidations, tax increase amounted to a small fraction of the total adjustment. Furthermore, though they unfolded over a longer period with respect to the unsuccessful ones, the overall budget cut was not larger. As regards the macroeconomic impact, successful episodes tended to be associated with improved economic performance. During the adjustment period and in the following two years, the economies experienced strong consumption and investment growth, reduced unemployment, better international competitiveness and falling interest rates. This empirical evidence is here interpreted via the theory known as expectation view of fiscal policy.     

The growth impact of discretionary fiscal policy measures

This paper looks at the impact of discretionary fiscal policy on economic growth for a sample of 18 EU countries over the period 1998–2011. The main novelty of this paper is the use, on the revenue side, of a dataset of fiscal measures based on the yield of actual legislative and budgetary measures, rather than approximations, such as changes in cyclically-adjusted variables. Using static and dynamic panel data techniques, we find that fiscal consolidation generally has a negative impact on growth in the short run, although some specific budget categories are not found to be statistically significant. In general, expenditure-based measures are found to have a slightly lower detrimental effect on growth compared to revenue measures, although the difference is not statistically significant. Among expenditure cuts, reductions in government investment and consumption are found to be growth reducing. Among revenues, indirect tax increases are found to have a particularly strong negative impact. Dynamic specifications suggest that consolidation reduces growth mainly in the year of fiscal adjustment, while future growth rates are affected only through the usual time persistence. Non-linear specifications indicate that spreading out consolidation may reduce the negative impact on growth slightly, and there is weak evidence that this is especially the case for revenue-based adjustment.     

Who was affected by new welfare reform strategies? Microdata estimates from Canada

A heterogeneous mix of aggressive welfare reforms took effect in different provinces and years starting in the 1990s. Welfare participation rates subsequently declined. Previous investigations of these declines focused on cuts in benefits and stricter eligibility requirements. This article focuses instead on work requirements, diversion, earning exemptions and time limits – referred to jointly as new welfare reform strategies – while controlling for benefit levels, eligibility requirements, province-specific labour market conditions and GDP growth, as well as individual-level socio-economic information. Province-year-specific variation in new reform strategies produce estimates implying that their presence is associated with a large decline in welfare participation of 1.3 percentage points (14% relative to the unconditional mean participation rate of 9.2%). Our coding scheme generates new measures of policy variation that distinguish reductions in benefit levels and tighter eligibility restrictions from new welfare reform strategies, helping identify how different subpopulations responded to different kinds of welfare reforms. Estimates from 46 subpopulations demonstrate that immigrants, native Canadians, single parents and disabled people were substantially more likely to be affected by aggressive new attempts to limit welfare participation than other Canadians receiving social assistance.     

What is Vulnerable During Fiscal Retrenchment?

Using data for 70 countries in the 1980s, this study investigates the impact of socioeconomic and political characteristics of a country on the vulnerability of expenditure categories during budget cuts. Greater democracy is associated with less vulnerability of the social and productive sectors and with more vulnerability of the administrative/defense, infrastructure, and miscellaneous sectors. Political instability reduces the vulnerability of the social, administrative/defense, and miscellaneous sectors and increases that of the productive sector. Fiscal federalism increases the vulnerability of the infrastructure and administrative/defense sectors and reduces that of the productive sector. The relative size of the budget cuts is also a determining factor.     

A budget impact analysis of budesonide/formoterol in patients with mild asthma in Egypt

Abstract

Background: The aim of this study is to estimate the budget impact of budesonide/formoterol fixed dose combination (FDC) vs salbutamol, both used as needed, in mild asthma patients, from the perspective of the Health Insurance Organization (HIO).

Methods: A static budget impact model was developed to assess the impact of budesonide/formoterol FDC entry on HIO budget over a 3-year period in Egyptian settings. Direct medical costs, including the costs of asthma medications, exacerbations, and management of side-effects, were obtained from HIO cost data. Population data were obtained from the World Bank and supplemented with local studies, and the rates of exacerbations, adverse effects, and number of sick leave days were elicited from the SYGMA 1 trial. Scenario analyses from a societal perspective and deterministic sensitivity analyses were conducted.

Results: The total costs (drug and non-drug costs) for managing mild asthma patients from the HIO perspective were estimated to be EGP8.563 billion before budesonide/formoterol entry compared to EGP5.525 billion post-entry, leading to a total budget savings of EGP3.038 billion after 3?years. This total budget saving included an increase in drug costs (EGP104 million) and a decrease in non-drug costs (EGP3.143 billion). Drug costs were higher in the budesonide/formoterol group than in the salbutamol group, but this cost was offset by reductions in non-drug costs, resulting in a reduction in the total costs of healthcare resources. At the societal level, the total budget savings after including the indirect costs was expected to be EGP5.976 billion after 3?years of budesonide/formoterol entry.

Conclusion: Budesonide/formoterol in mild asthma instead of salbutamol produces better patient outcomes and decreases total costs, with increases in drug cost offset by reductions in non-drug costs due to fewer exacerbations. Budesonide/formoterol is a budget saving option for guideline-directed treatment, from the economic perspective of the payer and the health perspective of the patient.     

The effects of alternative fiscal policies on the intertemporal government budget constraint

This article presents the effects of alternative fiscal policies on the intertemporal government budget constraint when the time horizon of the policy maker varies. I show that the wealth effect associated with cuts in the skill-adjusted labor income tax rate improves the intertemporal budget balance, whereas the intertemporal substitution effect associated with the physical capital income tax rate deteriorates the intertemporal budget. Under plausible parameter values, the tax rate on skill-adjusted labor income cannot by itself balance the intertemporal budget at all horizons.     

A $15 U.S. Minimum Wage: How the Fast-Food Industry Could Adjust Without Shedding Jobs

We consider the extent to which U.S. fast-food businesses could adjust to an increase in the federal minimum wage from its current level of $7.25 an hour to $15 an hour without having to resort to reducing their workforce. We consider this issue through a set of simple illustrative exercises, whereby the US raises the federal minimum wage in two steps over four years, first to $10.50 within one year, then to $15 after three more years. We conclude that the fast-food industry could absorb the increase in its overall wage bill without resorting to cuts in their employment levels at any point over this four-year adjustment period. We find that the fast-food industry could fully absorb these wage bill increases through a combination of turnover reductions, trend increases in sales growth, and modest annual price increases over the four-year period. Working from the relevant existing literature, our results are based on a set of reasonable assumptions on fast-food turnover rates, the price elasticity of demand within the fast-food industry, and the industry’s underlying trend for sales growth. We also show that fast-food firms would not need to lower their average profit rate during this adjustment period.     

A macroeconomic analysis of sales and payroll tax cuts

This paper analyzes the short-run impact of sales and payroll tax cuts in a complete macroeconomic model which explicitly involves the government financing constraint. Sales and payroll tax cuts have been stressed as good measures for achieving once-for-all price level reductions. We demonstrate that in quite plausible circumstances, cuts in these taxes (financed by an increase in the personal tax rate) result in the price level increasing, not decreasing. Also, it is shown that a policy package involving a wage subsidy and a profits tax hike must involve employment and investment moving in the same, not the opposite, direction.     

FROM BUDGETARY FORECASTS TO EX POST FISCAL DATA: EXPLORING THE EVOLUTION OF FISCAL FORECAST ERRORS IN THE EUROPEAN UNION

This paper splits the ex post error in the budget balance, defined as the final budget figure minus the planned figure, into implementation and revision errors, and investigates the determinants of these errors. The implementation error is the difference between the nowcast, published toward the end of the year of budget implementation, and the planned budget, while the revision error is the difference between the final figure and the nowcast. The split takes account of differences in reporting incentives at the different budgeting stages. The predictive content of fiscal plans is important, because it determines the reliability of the budget, while that of the nowcasts is important also because these figures are an input for the next budget and may contain important signals about the fiscal stance. Implementation and revision errors may arise for political and strategic reasons. Our results suggest that an improvement in the quality of institutions, whether measured by the tightness of national fiscal rules, the medium‐term budgetary framework or budgetary transparency, increases the quality of budgetary reporting at both the planning and the nowcast stage. This supports the recently adopted requirements on national fiscal frameworks. It also strengthens the case for a close monitoring by the European Commission of national budgeting. (JEL E6, H6)     

Austerity and anarchy: Budget cuts and social unrest in Europe, 1919–2008

Does fiscal consolidation lead to social unrest? Using cross-country evidence for the period 1919 to 2008, we examine the extent to which societies become unstable after budget cuts. We find a positive correlation between fiscal retrenchment and instability. Expenditure cuts are particularly potent in fueling protests; tax rises have only small effects. To isolate the effect of policy decisions on social unrest we exploit variation in neighboring countries’ past fiscal policies.     

Twin Deficits in the European Countries

Public debt is a burden on future electors and taxpayers. In the absence of constitutional constraints, the incumbent government may show the cost of some public expenditures or tax reductions toward the future by financing them via new debt. However, according to the Ricardian theorem of public debt, the burden of debt is always anticipated via increased saving. If this theorem were true, a budget deficit would not affect the current account of the balance of payment. This paper analyzes the relationship between trade deficit and budget deficit. Using yearly data for the period between 1970 and 2010 in 33 European countries, we find evidence supporting the hypothesis that a chronic and robust budget deficit generates a trade deficit. The dynamic estimates show that a 1 % decrease in the government budget surplus/GDP ratio tends to deteriorate the current account/GDP ratio of 0.37 %, confirming previous studies with a different empirical basis. Dividing the sample period into two sub-periods (1970–1991 and 1992–2010), empirical findings show that current and past values of government budget influence trade balance in the first sub-period, whilst past values of government budget affect trade balance in the most recent years. Moreover, the estimated effect of government budget on current account balance is positive and equal to 0.48 and 0.30, respectively. For the high deficit countries, a long-run relationship between these variables has been found, showing that one percentage point increase in budget surplus/GDP ratio is associated with an improvement in the current account balance of roughly 0.15 percentage point. The estimated long-run government budget elasticity is negative and statistically significant, while the estimated speed of adjustment is equal to 0.33. Finally, Granger causality tests show mixed results.     

POTENTIAL STATE‐LEVEL CARBON REVENUE UNDER THE CLEAN POWER PLAN

In 2015, the U.S. Environmental Protection Agency issued the Clean Power Plan under which each state can set a mass‐based target to meet its assigned electric power sector carbon dioxide emission reductions. If it proceeds, states can design policies to meet those requirements and also raise revenue via a carbon tax or cap‐and‐trade program with auctioned permits. We calculate each state's potential revenue and demonstrate its significance. In 13 states, carbon revenue could replace all of corporate tax revenue. In addition, we collect budget projections from six key states to determine if and how carbon revenue can substantially reduce deficits. While such revenue is not free money, we discuss its advantages over use of distortionary taxation. Finally, we consider distributional aspects and potential external fiscal effects on federal revenue. (JEL H2, H3, H7, Q5)     

Budget impact model of tobramycin inhalation solution for treatment of Pseudomonas aeruginosa in cystic fibrosis patients

Abstract

Background:

Pseudomonas aeruginosa (PA) is the most common airway pathogen in cystic fibrosis (CF) patients. The objective of this analysis was to determine the costs of managing PA infection in CF patients with a chronic regimen of tobramycin inhalation solution (TIS).

Methods:

A budget impact model of CF patients was developed to evaluate the costs of TIS from a US managed-care organization (MCO) perspective. The Microsoft Excel model compared TIS treatment plus standard care with standard care alone over a 4-year time horizon and included the cost of drugs, medical care, and annual probabilities of hospitalization and IV anti-pseudomonal (anti-PA) antibiotics administration.

Results:

For an MCO with 5,000,000 members, 389 members 6 years of age or older were estimated to have CF, and 218 (56%) had PA infection. Assuming that use of TIS increased from 20% to 25%, the 1-year budget increased $231,251 or from $0.049 to $0.053 per member per month (PMPM). The net drug budget increase was $243,919, while medical costs associated with exacerbation management decreased $12,669 over the first year. Increasing utilization of TIS, from 20% to 40% over 4 years resulted in an incremental overall budget increase of $925,002, a 3% decrease in hospitalizations, and a 4% decrease in administrations of IV anti-PA antibiotics. These reductions translated to a medical care cost saving of $50,676 over 4 years. Limitations of this study include that the clinical data for the model are from clinical trials conducted in 1996 and the estimation of TIS use for CF patients with chronic PA infections can be impacted by TIS adherence.

Conclusion:

Model results suggest that increasing the use of TIS decreases medical care costs due to decreased hospital admissions and the use of IV anti-PA antibiotics at the expense of higher drug costs.     

Wind Power in Europe: A Simultaneous Innovation–Diffusion Model

The purpose of this paper is to provide a quantitative analysis of innovation and diffusion in the European wind power sector. We derive a simultaneous model of wind power innovation and diffusion, which combines a rational choice model of technological diffusion and a learning curve model of dynamic cost reductions. These models are estimated using pooled annual time series data for four European countries (Denmark, Germany, Spain and the United Kingdom) over the time period 1986–2000. The empirical results indicate that reductions in investment costs have been important determinants of increased diffusion of wind power, and these cost reductions can in turn be explained by learning activities and public R&D support. Feed-in tariffs also play an important role in the innovation and diffusion processes. The higher is the feed-in price the higher is, ceteris paribus, the rate of diffusion, and we present some preliminary empirical support for the notion that the impact on diffusion of a marginal increase in the feed-in tariff will differ depending on the support system used. High feed-in tariffs, though, also have a negative effect on cost reductions as they induce wind generators to choose high-cost sites and provide fewer incentives for cost cuts. This illustrates the importance of designing an efficient wind energy support system, which not only promotes diffusion but also provides continuous incentives for cost-reducing innovations.      

Endowment,industrial structure,and appropriate financial structure: a new structural economics perspective

Standard policy advice at times of fiscal adjustment is to protect public spending on the poor. However, the political economy of fiscal adjustment could well indicate the opposite direction, to protect the non‐poor from adjustment. This point is illustrated by three case studies based on research on social programs in Argentina, Bangladesh, and India, focusing on how targeting performance varied with aggregate outlays. The results suggest a tendency for program spending on the non‐poor that is protected from budget cuts.