Fiscal consolidation and financial reforms

We use a rare events logistic regression model as well as traditional probit and logit models to investigate the impact of fiscal consolidation on the likelihood of financial reforms for a panel of 17 countries over the period 1980–2005. We show that large austerity plans, mainly implemented through spending cuts rather than tax hikes, promote financial reforms. By considering reforms affecting specific areas of the financial sector, we find that the banking sector reforms and domestic finance reforms are more likely to occur when fiscal adjustments are put in place. Interestingly, while banking sector reforms are mainly prompted during periods of tax-driven consolidations, spending cuts driven consolidation packages seem to propel the implementation of domestic finance reforms. Finally, we show that higher inflation, lower degree of trade openness, a deterioration of financial conditions and, to some extent, a fall in the degree of competitiveness enhance the probability of financial reforms.     

How many educated workers for your economy? European targets,optimal public spending,and labor market impact

This paper studies optimal taxation schemes for education in a search-matching model where the labor market is divided between a high-skill and a low-skill sector. Two public policy targets - maximizing the total employment level and optimizing the social surplus - are studied according to three different public taxation strategies. We calibrate our model using evidence from thirteen European countries, and compare our results with the target from the Europe 2020 Agenda for achievement in higher education. We show that, with current labor market characteristics, the target set by governments seems compatible with the social surplus maximization objective for some countries, while being too high for other countries. For all countries, maximizing employment would imply higher educational spending than that required for the social surplus to reach its maximum.     

The high road and the low road to international competitiveness: Extending the neo‐Schumpeterian trade model beyond technology

Extending the neo‐Schumpeterian trade model, we estimate a ‘social‐gap’ model for a group of 17 OECD countries over the period 1975–1995. We find that government spending on social protection, employment protection regulations, union density, strike activity, and income security in the labor market (all measured in ‘gap’ form) are statistically significantly related to changes in international competitiveness. Specifically, we find some support for a Calmfors–Driffil, nonlinear, relation between cooperative labor relations and social spending patterns on the one hand, and international trade (and inward foreign investment) competitiveness on the other, implying that countries with relatively stronger institutional arrangements have better international economic performance than countries in the middle of the scale of conflict and cooperation. Our results indicate that models focusing solely on innovative effort are misspecified, and may suffer from an omitted variable bias caused by the absence of consideration of other institutional factors influencing international trade and investment.     

Does higher government debt link to higher social expenditure? New method,new evidence

Scholars believe that higher social expenditures are usually linked with higher government debts, whereas higher debts reduce social expenditures. However, it is reasonable to speculate that higher government debt may contribute to higher social spending, while fiscal deficits occur during a recession, which commonly creates greater demand for social expenditure. For a deeper investigation, this paper revisits the dynamic relationship between social spending and public debts in the time-frequency domain, using the novel wavelet-coherency analysis as well as the phase-difference technique to derive the co-moved and causal relationships between social spending and public debts in 13 OECD countries. The evidence identifies a dynamic relationship between variables. While higher social expenditures increase government debts, the shocks from government debts to social expenditures are conversely uncertain. We discover that higher government debt does reduce social expenditures, but it may be linked to higher social spending. The robustness of partial coherency and phase-difference discovers the role of a political party in the decision over social welfare programmes in the sample countries.     

Is Post-Communist Health Spending Unusual?

What factors determine a country's spending on health? And what factors determine the share of spending financed by the public sector? Taking these factors into account, is post-communist health spending unusual? For the OECD economies, we find that per capita health spending is strongly related to per capita income, with an elasticity of about 1.5. The elasticity for developing economies is close to one. Spending is also positively related to the elderly dependency rate, but the relationship is weaker than a static comparison of spending by the elderly and non-elderly would suggest. Even though health spending as a share of GDP in the post-communist countries of eastern and central Europe is below the OECD average, there is evidence of above normal health spending in most countries when we control for income and demographics. For Hungary, the ‘excess’ spending reached over three percentage points of GDP in 1994. For the OECD sample, four development indicators account for half the variation in the public sector share of total health spending. Political variables help explain the remainder. If the post-communist countries converge to the market economy pattern, the share of public financing will fall, yet still remain well above half.     

Trade,poverty, and social protection in developing countries

How do shifts in trade affect social protections for the poor? Although the fraction of the world's population considered the “extreme” poor has fallen by over one-half over the past quarter century, many of those lifted above the global poverty line remain vulnerable to shocks that could place them back into poverty. These are the groups that require social protection to stabilize their incomes. Among the shocks to which the absolute poor have been exposed are those created by trade liberalization, particularly of the agricultural sector. The resulting risks, uncertainties, and threats to social stability from this type of trade require that the poor be provided with some forms of adjustment assistance. We examine the effects of trade components on several dimensions of social protection in developing countries, including spending, coverage, and adequacy over the past two decades. We find that, contrary to previous studies, disaggregating trade may be a key to determining which international market variables drive expansion of social protection. Disaggregating trade balances in agricultural vs. manufactured goods reveals that net food and agricultural exporters provide better social protection than countries that report agricultural trade deficits. Meanwhile, countries with manufacturing trade surpluses tend to experience reduced social protection coverage. We reason that governments of net agricultural exporters face incentives to invest in social programs that extend eligibility to the rural poor. Manufacturing export-driven economies, on the other hand, are likely participants in global production chains that limit the capacity of the public sector to extend social protection.     

Fiscal policy,macroeconomic performance and industry structure in a small open economy

We analyse how fiscal policy affects both the macroeconomy and the industry structure, using a multi-sector macroeconomic model of the Norwegian economy with an inflation targeting monetary policy. Our simulations show that the magnitude of the government spending and labour tax cut multipliers, whether monetary policy is active or passive, is comparable to what is found in the literature. A novel finding from our simulations is that the industry structure is substantially affected by an expansionary fiscal policy, as value added in the non-traded goods sector increases at the expense of value added in the traded goods sector. Moreover, expansionary fiscal policy reduces the mark-ups in the traded goods sector, while the mark-ups are roughly unchanged in the non-traded goods sector. The contraction of activity in the traded goods sector increases when monetary tightening accompanies the fiscal stimulus. Hence, we find that such a policy mix is likely to produce significant de-industrialization in a small open economy with inflation targeting.     

A causal relationship between government spending and economic development: an empirical examination of the Greek economy

During the past few years, in many countries, both developed and developing, there has been a tendency to increase government spending. This article intends to examine this tendency of the public sector as well as the existing relationship between the extent of government spending and economic development. The data used cover a time period between 1960 and 2001. An effort is made to determine causal relationships between spending and economic development through the use of Wagner's theory.     

我国金融服务贸易竞争力和开放度的关系研究

随着改革开放的不断深入,服务行业的国际化正成为我国改革和开放的重点,金融服务业也在开放的同时面临着竞争和挑战。本文通过对金融服务贸易竞争力的计算、金融服务贸易开放度的计算以及二者之间关系进行实证分析的基础上,研究在开放环境下我国金融服务贸易的竞争力状况,以及金融服务贸易的开放对我国金融服务业竞争力的影响。     

Government spending and economic growth in the OECD countries

Using panel data from 1995 to 2011 for 34 OECD countries, we examine the effects of government consumption spending, public social spending, and public investment on economic growth. We use a generalized method of moments estimation technique to solve inconsistency problems with fixed effects and random effects panel estimation. We find that an increase in public social spending has a significant negative effect on subsequent economic growth. Government consumption spending and public investment have no significant effect on subsequent economic growth.     

Tax Rate Variability and Public Spending as Sources of Indeterminacy

We consider a constant returns to scale, one sector economy with segmented asset markets of the Woodford type. We analyze the role of public spending, financed by labor income and consumption taxation, on the emergence of indeterminacy. We find that what is relevant for indeterminacy is the variability of the distortion introduced by government intervention. We show that the degree of public spending externalities in preferences affects the combinations between the tax rate and its variability under which indeterminacy occurs. Moreover, we find that consumption taxes can lead to local indeterminacy when asset markets are segmented.     

‘Just one of us’: consumers playing oligopoly in mixed markets

Consumer cooperatives represent a highly successful example of democratic form of enterprises operating in developed countries. They are usually medium to large-scale companies competing with the profit-maximizing firms in the retail sector. This paper describes this situation as a mixed oligopoly in which consumer cooperatives maximize the utility of consumer-members and, in return, refund them with a share of the profits corresponding to the ratio of their individual spending to the cooperative’s total sales. We show that when consumers possess quasi-linear preferences over a bundle of symmetrically differentiated goods, and companies operate using a linear technology, the presence of consumer cooperatives positively affects total industry output, as well as welfare. The effect of cooperatives on welfare proves to be even more significant when goods are either complements or highly differentiated, and when competition is à la Cournot rather than à la Bertrand.     

Fiscal policy and asset price volatility

This paper investigates the relationship between volatility of different asset prices and the volatility of various indicators of fiscal policy (primary balance, spending and revenue). We find evidence that asset price volatility affects the volatility of fiscal policy stance in a positive and significant way. The effect comes primarily through residential property and equity price volatility on government revenue and spending. Increased volatility in commercial property prices is associated with increased variability of government revenue. Output growth volatility is the dominant determinant of revenue and primary balance variability, whereas bad budgetary conditions and the size of the public sector are the most significant determinants of spending variability. Trade openness leads to greater variability of government spending, revenue and primary balance to GDP ratios.     

Wage spillovers across sectors in Eastern Europe

This paper studies the interactions between wages in the public sector and the private traded and non-traded sector in ten transition countries which are members of the European Union, during the period 2000–2011. The theoretical literature on wage spillovers, as well as the Balassa–Samuelson hypothesis, suggests that the internationally traded sector should be the leader in wage setting, with sheltered and public sector wages adjusting. Using a cointegrated VAR approach we show that a large heterogeneity across countries is present, and non-traded and public sector wages are often leaders in wage determination or at least affect traded sector wages in the short run. This result is relevant from a policy perspective since wage spillovers, leading to costs growing faster than productivity, may affect the international cost competitiveness of the traded sector and thus the catching-up process may be accompanied by accumulation of large international imbalances.     

Does Urbanization Mean Bigger Governments?

In this paper, we introduce urbanization as an important driver of government size. Using panel data for 175 countries from 1960 to 2010, we find that there is a close link between urbanization and the size of the public sector, especially when looking at education, health care, and social issues. Various robustness checks confirm this finding. An analysis of state‐level public spending in Colombia and Germany confirms our hypothesis on the subnational level. On the microeconomic level, people in urban areas acknowledge that governments should take more responsibility, and they are more in favor of redistribution. This finding can help to explain the evolution of government size, and it can also predict the present and future needs of urbanizing areas.     

Catching up: The role of demand, supply and regulated price effects on the real exchange rates of four accession countries

The main aim of this paper is to examine the exchange rate behaviour of a group of four transitional, EU accession countries, with a view to making policy recommendations regarding their full accession to the European Monetary Union. We employ a dynamic OLS panel estimator to investigate the relative importance of demand and supply influences on the exchange rates of these countries. Our analysis shows that both supply‐ and demand‐side effects are important for the accession countries, although their overall effect on inflation differentials and competitiveness seems to be small. An additional focus of the paper is the examination of the role that administrated, or regulated, prices and the productivity of the distribution sector play in the real exchange rate dynamics. Using a unique database we show that administrative prices have been a powerful force behind price and real exchange developments for our group of accession countries. The distribution sector is shown to have an independent effect on the internal price ratio over and above that generated by the Balassa–Samuelson effect.     

On the size of government spending multipliers in Europe

This article compares the size of government spending multipliers in Europe by applying a panel structural vector autoregression analysis on 11 eurozone and 8 non-eurozone countries using quarterly data from 1991Q1 to 2012Q4. We find that (i) spending multipliers are smaller in eurozone compared to non-eurozone countries, (ii) across the euro area the impact of government spending on GDP has been higher before than after the introduction of the euro, (iii) spending multipliers are larger in the eurozone periphery than in the core countries and (iv) since the beginning of the recent financial crisis, spending multipliers have become larger both for eurozone and for non-eurozone countries. We relate these results to an emerging theoretical literature linking the size of fiscal multipliers to the monetary policy stance. We also discuss the implications of our findings for the effectiveness of fiscal policy in Europe.     

Identifying fiscal policy (in)effectiveness from the differential counter‐cyclicality of government spending in the interwar period

Differences across decades in the counter‐cyclical stance of fiscal policy can identify whether the growth in government spending affects output growth and so speeds recovery from a recession. We study government‐spending reaction functions from the 1920s and 1930s for twenty countries. There are two main findings. First, surprisingly, government spending was less counter‐cyclical in the 1930s than in the 1920s. Second, the growth of government spending did not have a significant effect on output growth, so that there is little evidence that this feature of fiscal policy played a stabilizing role in the interwar period.     

Terms of trade volatility,government spending cyclicality,and economic growth

This paper presents estimates of the effects that terms of trade volatility has on real gross domestic product (GDP) per capita growth. Based on 5‐year nonoverlapping panel data comprising 175 countries during 1980 to 2010, the paper finds that terms of trade volatility has significant negative effects on economic growth in countries with procyclical government spending. In countries where government spending is countercyclical, terms of trade volatility has no significant effect on growth. Conditional on the mediating role of government spending cyclicality, the GDP share of domestic credit to the private sector has no significant effect on the relationship between growth and terms of trade volatility.     

Fiscal transparency,government effectiveness and government spending efficiency: Some international evidence based on panel data approach

The global financial crisis and the debt crisis of the EU countries revealed serious weaknesses in fiscal reporting. As a consequence, uncertainties regarding the real situation of the public accounts of the countries raised doubts in relation to the effectiveness of government policies. Since then, countries are undertaking reforms in order to improve fiscal transparency. This paper analyzes whether countries are making efforts to enhance fiscal transparency, and whether fiscal transparency affects government effectiveness and government spending efficiency. We consider two channels through which this effect occurs. The first channel is indirect and it works through public debt. The second channel is the direct effect that transparency has on government effectiveness and government spending efficiency once transparency enhances accountability and thus the task of resource allocation. We use a sample of 82 countries (68 developing and 14 developed) for the period 2006–2014, and panel data analysis. Comparing the scores of fiscal transparency between 2006 and 2014, we observe that approximately 80 per cent of the countries made efforts to improve fiscal transparency. The results suggest fiscal transparency is important to reduce public debt and to improve government effectiveness and government spending efficiency.