A comparison of monetary and fiscal policy interaction under ‘sound’ and ‘functional’ finance regimes

The interest rate and the fiscal balance can be thought of as two independent instruments to be assigned to two targets, the path of output and the path of public debt. Under what we term a ‘sound finance rule’ the interest rate targets output while the fiscal balance targets public debt; under a ‘functional finance rule’ the budget balance targets the output gap and the interest rate targets the debt ratio. The same unique combination of interest rate and fiscal balance will be consistent with output at potential and a constant debt‐GDP ratio regardless of which instrument is assigned to which target. The stability characteristics of the two rules differ, however. At low levels of debt, both rules converge to the targets, but there is a threshold debt level above which only the functional finance rule converges. Contrary to conventional wisdom, therefore, the case for countercyclical fiscal policy becomes stronger, not weaker, when the ratio of public debt to GDP is already high. We apply our framework to describe the possibility of policy‐generated cycles in the United States over the past five decades.     

Is Infrastructure Spending an Effective Fiscal Policy?

The impact of expansionary fiscal policy intended to increase economic growth by using infrastructure‐focused stimulus packages is analyzed by considering the debt to GDP ratio dynamics model. It is shown that for the data characterizing the current state of the US economy the government investment in infrastructure cannot decrease the debt to GDP ratio. The paper contributes to the ongoing fiscal policy debate whether government investment in infrastructure is an effective approach to boost the economy.     

MACROECONOMIC ADJUSTMENT UNDER AN EXTERNAL AND FISCAL CONSTRAINT: A FIX‐PRICE/FLEX‐PRICE APPROACH

This paper presents a dual economy model of the fix‐price/flex‐price kind that explicitly allows for the existence of a government budget constraint in a fully open economy. Both the external and fiscal closures resemble very much the contemporary experience of several Latin American countries, where fiscal discipline and fix exchange rate systems have been the norm. Thus, within the public sector, it is assumed that public investment is the adjustment variable, while foreign reserves variation adjusts the external balance. Short‐run impacts of policy‐induced variables and changes in exogenous external financing are analysed. Relevant trade‐offs, especially between output and inflation, follow from an analysis in which the time perspective is rather short. However, in the medium term, some balancing forces in the economy can moderate the trade‐offs. We show among a wide range of events and policy options that this is the case of debt relief or a concerted lending strategy.     

Are Southern‐poor Countries’ Governments more Profligate than their Northern‐rich Counterparts? Fiscal Criteria and Impulse Responses

This study examines the health of public finances in different geographical regions by emphasising the discrepancies in North versus South and rich versus poor countries. The last decade's debt and deficit figures depicting a general fiscal consolidation across regions and income levels show signs of worsening. When the fiscal criteria are adjusted for cyclical factors, fiscal pressure appears in most countries since the end of the 1990s, but has been more persistent in poor countries, and in Asia. The dynamics of governments’ reaction to debt accumulation reveals, however, that most regions exhibit consistent anti‐debt policies to various degrees. The exception is the Latin American and Caribbean region where results suggest a lack of debt‐fighting policies. Among income categories, rich countries generate the highest primary surpluses when confronted with debt accumulation.     

PUBLIC DEBT AS PRIVATE WEALTH: SOME EQUILIBRIUM CONSIDERATIONS

Government bonds are interest‐bearing assets. Increasing public debt increases wealth, income and consumption demand. The smaller government expenditure is, the larger consumption demand must be in equilibrium, and the larger must be public debt. Conversely, lower public debt implies higher government spending and taxation. Public debt plays, thus, an important role in establishing equilibrium. It distributes output between consumers and government. In case of insufficient demand, a larger public debt entails higher private consumption and less public spending. If upper bounds on public debt are introduced (as in the Maastricht treaty), such constraints place lower bounds on taxation and public spending and may rule out macroeconomic equilibrium. As an aside, a minor flaw in Domar's (American Economic Review, 34 (4), pp. 798–827) classical analysis is corrected.     

ARE FISCAL SUSTAINABILITY AND STABLE BALANCED GROWTH EQUILIBRIUM SIMULTANEOUSLY ATTAINABLE?

This paper presents an examination of the sustainability of national debt and economic growth, and the growth effects of government debt and income taxation. Results show sustainability of national debt and economic growth under the primary surplus rule. Fiscal policy and balanced growth are compatibly sustainable if and only if the government sets a long‐run target debt/GDP (gross domestic product) ratio within a reasonable range. Results also show that a rise in the long‐run debt/GDP ratio reduces the balanced growth rate. Based on these two results, the long‐run debt/GDP ratio is greater than zero if the government aims to maximize the balanced growth rate.     

A Vicious Cycle of Manias,Crises and Asymmetric Policy Responses – An Overinvestment View

Over the past three decades, we find that asymmetric policy responses heavily contributed to manias and bursting bubbles that eventually trapped the major industrial economies into near zero short‐term interest rates with rapidly rising public indebtedness. The article uses the endogenous business cycle theories of Wicksell, Mises, Schumpeter, Hayek and Minsky to show how ostensible counter‐cyclical monetary policies are asymmetric, as central banks are less willing to raise interest rates in booms than cut them when bubbles collapse. After interest rates have fallen towards zero, fiscal policy is called on which sooner or later becomes bounded by extraordinary debt to GDP ratios. Central banks hesitate to raise interest rates even in the face of a partial economic recovery because the cost of public debt service would become prohibitive. The economies then languish at very low interest rates that encourage low productivity real investments and a continual threat of bubbles in asset and raw material markets. This makes them unable to deal with further macroeconomic shocks.     

On dynamics in a Keynesian model of monetary and fiscal stabilization policy mix with twin debt accumulation

In this paper, a six‐dimensional model of flexible prices with the monetary and fiscal policy mix, describing the development of the firms’ private debt, the output, the expected rate of inflation, the rate of interest, government expenditure, and government bonds are analyzed. The stress put on the “twin debt accumulation” means that in our model both private debt accumulation and the public debt (government bond) accumulation are explicitly introduced. Questions concerning the existence of limit cycles around its normal equilibrium point are investigated. The bifurcation equation is found. The formulae for the calculation of its coefficients are gained. Numerical example illustrating the results attained is presented by means of numerical simulations.     

Not kennt kein Gebot? Sondervermögen als Speicher von Notlagenkrediten

The German federal government is facing criticism for using the exemption from the national debt brake due to the coronavirus crisis to expand the fiscal leeway for its future energy and climate policies. The budget dispute is taking place against the backdrop of a massive expansion of government debt in Europe. In the following, the author explain the critique of the latest supplementary budget and argues that the federal government has missed the opportunity to prove that the fiscal policy options within the existing rules are sufficient.

     

The Fiscal Framework in a Currency Union: Lessons from a Comparison between the Euro Area and the Eastern Caribbean Currency Union

This paper draws out lessons from the euro area (EA) that are transferable to the Eastern Caribbean Currency Union (ECCU) and other Caribbean economies with fixed exchange rates. Based on observations from both the EA and the ECCU, we present a new policy framework which is capable of imposing fiscal discipline, with the aim of avoiding the risk of unsustainable fiscal policies reappearing and of preventing monetary policy from being undermined by undisciplined national governments. In the ECCU case, we find that fiscal deficits are more a result of financial and trade imbalances than fiscal indiscipline per se. Consequently, constraints on overall debt, public and private, rather than direct limits on endogenous public deficits, appear to be the appropriate response.     

影响国债发行规模的经济因素分析

本文在分析可能影响我国国债发行规模的各种经济变量的基础上,检验了国债发行与各经济变量的相关关系和因果联系,根据分析,影响国债发行规模最主要的因素是债务余额、GDP的波动,其次是国家财政收入和支出、赤字水平.也就是说,影响国债发行规模的因素更多的是财政本身的收支状况和宏观经济形势,其余的因素,如GDP、社会资金的余缺、财政的投资规模,它们的影响相对较小.     

Brazil Post‐Lula: Challenges and Opportunities Facing the Brazilian Business Environment

The Brazilian economy indicates great potential for future economic growth. An increasing and affluent middle class, expanding exports, and foreign reserves are testimonies of Brazil's recent accomplishments. The country, however, still faces a number of challenges that may compromise its sustainable long‐term economic goals and objectives. This article focuses on the Luiz Inacio “Lula” da Silva government's economic performance. The article's main findings show increasing bottlenecks being created as a result of the Lula government's eight years of low economic growth rates, which have penalized the country's competitiveness. The newly elected president, Dilma Rousseff, will inherit a substantial investment deficit in the areas of infrastructure, education, health care, research and development (R&D), and innovation, as well as Brazil's worst public debt/gross domestic product (GDP) ratio in the past 100 years. These conditions will prevent Brazil from growing and developing at faster rates. This article also elaborates on Dilma Rousseff's most recent statements and discusses likely future paths for the Brazilian economy. © 2012 Wiley Periodicals, Inc.     

Debt problems,home‐leaving,and boomeranging: A register‐based perspective on economic consequences of moving away from parental home

This article analyses the development of financial problems after leaving one's parental home, and considers how financial problems are associated with likelihood of boomeranging (i.e., adult children returning to parental home). The 9‐year follow‐up study focused on a nationally representative sample of Finnish young people between the ages of 15 and 25 who moved out from their parental home between 2006 and 2009 (n = 9,196). The measure of debt problems was based on monthly data on debt enforcement, a legal matter which may bring serious consequences for the debtors. The primary within‐individual, longitudinal analyses showed that debt problems increased directly after leaving parental home. Education and family background were significant predictors of debt problems in the four years after leaving parental home. Early leavers had significantly more debt problems than later leavers. Debt problems were associated with a higher likelihood of moving back to parental home. The results imply that it is important to support economic decision‐making during early adulthood.     

“中国式财政分权”促进了基本公共服务发展吗?

基于一项多维度、多品种的中国大陆省际间基本公共服务发展指数数据,实证检验"中国式财政分权"模式对省域基本公共服务发展的影响效应。研究结果表明:财政分权自身并不是导致中国基本公共服务发展滞后的原因,适度的收入分权增加了地方政府的可支配财力,有效促进了基本公共服务发展;"中国式财政分权"模式所诱导的政府间投资竞争显著减弱了基本公共服务发展水平,并且这一负向效应超过了财政分权自身的直接正向效应。为了保障"民生性"基本公共服务的有效供给,在现行财政分权模式下,需要重点改变传统单纯以GDP为重点的政绩考评模式,在地方政府绩效评估体系中加入社会福利指标。     

A meta‐analytic investigation of consumer over‐indebtedness: The role of impulsivity

In the past decade, evidence has been accumulated on the relationship between impulsivity and over‐indebtedness. Nevertheless, the magnitude of such association is still considered marginal compared to traditional socio‐demographic and economic factors, with the important consequence that impulsivity continues to be ignored in policy interventions for preventing and dealing with over‐indebtedness. The aim of this study was to meta‐analyse existing studies to answer the question: Are higher levels of impulsivity associated with greater over‐indebtedness? Scopus and Web of Science databases were searched for English language studies. Seventeen studies were eligible for the analysis. The random effect model yielded a significant positive association between impulsivity and over‐indebtedness (Hedges' g = .40). Type of over‐indebtedness (debt holding vs. unmanageable debt) and work status (percentage of employed individuals) significantly moderated this association. Results are discussed in terms of implications and recommendations for future research, policy and practice.     

积极财政政策的调整与财政改革

从当前及今后一个时期国内外经济发展态势分析和配合中央近期的宏观调控政策,应对积极财政政策加以调整.这不仅有利于巩固当前我国经济发展的良好势头,而且对于把握机遇促进我国经济社会长期稳定发展具有战略意义.在积极财政政策调整中要适当调减财政政策扩张力度,改进原来以长期建设国债为主的实施财政扩张性政策的工具组合,根据公共财政要求调整支出投向和重点.特别是应注重结合财政政策调整推进财政改革,完善税费制度,构建内需平稳增长机制,强化财政对结构优化的作用,并健全分税分级的公共财政体制,在长期建设国债规模缩小后,发展新的财政支出方式.     

略论政府职能与财政功能的转变

通过今年上半年抗击非典的斗争,我们比过去更深刻地认识到,我国经济发展和社会发展还不够协调.经过讨论,比较倾向性的意见是,政府职能和财政的功能要从经济建设型转向公共服务型.在这个转变中,可以探讨经济建设与社会建设孰轻孰重的问题.发展社会主义现代化建设既包括经济建设,也包括社会建设.经济增长本身不是目的,它只是实现社会发展的手段.发展的政策目标应当是提高人的生活质量和增强人的能力,提高人类发展水平,而不仅仅是人均GDP水平.我国市场化经济改革进程,为政府职能、财政功能的转换奠定了坚实的基础.多种所有制共同发展格局形成,市场经济主体不应再由政府承担,转应由企业主要是民营企业来承担.政府应更多地把注意力和公共资源投向提供公共产品和公共服务,转向为社会发展政策提供财政保障方面来.政府应当是公共产品和社会服务的提供主体,而不是经济建设的主体.由于多年来我们没有把财政的行为目标锁定在满足社会公共需要上,经济建设费用过多和公共支出的虚耗,挤占了稀缺的公共资源,侵蚀了政府的财力,在社会公益事业(特别是医疗卫生和基础教育方面,政府行为与财源分配严重失误)方面投入太少,欠账太多,因此社会问题越积越多.为了缓解社会矛盾,保持社会的稳定和安全,实现以人为本的发展目标,普遍提高全体人民特别是低收入群体的福利,我们政府要加快从那些不属于社会公共需要的领域抽身,降低财政支出中用于经济建设的比重,压缩越位的公共产品和非公共产品的支出,把更多的公共资源真正用到社会公共需要的领域来.     

Japan's Fiscal Policies in the 1990s

This paper first summarises Japan's fiscal policies in the 1990s. Then, we investigate the macroeconomic impact of government debt and the sustainability problem. We find that the Keynesian fiscal policy in the 1990s was not effective and fiscal sustainability may therefore become a serious issue. We also estimate the optimal level of deficits and evaluate fiscal reconstruction movements. It is shown that the actual deficit exceeded the optimal level in the late 1990s. We then inspect fiscal reconstruction movements in the Hashimoto Administration in 1997 and find that the major factor of recession in 1997 was not fiscal consolidation. An important lesson from Japan's fiscal policies in the 1990s is that long‐run structural reform is more important than short‐run Keynesian policy.     

Lässt sich der deutsche Leistungsbilanzüberschuss mit vertretbarem Aufwand reduzieren?

Can an expansive fiscal policy help to reduce Germany’s current account surplus while simultaneously creating positive spillover effects for the eurozone? If yes, what amount of measures would be required in order to bring the current account surplus below the 6% of GDP threshold specified in the EU Commission’s macroeconomic imbalance procedure? An analysis based on a global macroeconometric model shows that fiscal policy measures could reduce Germany’s surplus. The positive spillovers for the eurozone would be relatively small, however, while a huge amount of fiscal stimuli would be required to reach the 6% threshold. In addition, there would be a lasting increase in Germany’s public debt.     

Optimal fiscal policy in a small open economy with limited commitment

We introduce limited commitment into a standard optimal fiscal policy model in small open economies. We consider the problem of a benevolent government that signs a risk-sharing contract with the rest of the world, and that has to choose optimally distortionary taxes on labor income, domestic debt and international transfers. Both the home country and the rest of the world may have limited commitment, which means that they can leave the contract if they find it convenient. The contract is designed so that, at any point in time, neither party has incentives to exit. We define a small open emerging economy as an economy where the limited commitment problem is active in equilibrium. Conversely, a small open developed economy is an economy in which the commitment problem is not active. Our model is able to rationalize some stylized facts about fiscal policy in emerging economies: i) the volatility of tax revenues over GDP is higher in emerging economies than in developed ones; ii) fiscal policy is procyclical in emerging economies; iii) emerging economies may “graduate” from procyclical fiscal policy and adopt countercyclical policies in the long run.