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.     

China's Growing Government Debt in a Computable Overlapping Generations Model

This paper simulates the effects of China's growing government debt in a computable equilibrium model of overlapping generations. Our model assumes that the government increases debt to finance its spending in the short run, and then increases taxes or cuts spending to keep the debt–GDP ratio constant. The spending‐driven government debt increases public capital and output in the short run, but decreases private investment, total capital stock, output, and net exports in the long run, and makes the future generations worse off. Among various means of debt control, a decrease in government spending seems to be the least harmful to private investment, capital stock, and output while an increase in capital taxation is most detrimental.     

关于公共支出与经济增长的国内外研究综述

公共支出与经济增长的关系一直以来为经济学家们所争论。持公共支出促进经济增长观点认为,政府公共支出在经济增长中发挥着重要作用,因为它为经济发展提供了大量的公共品和其他具有外部效应的公共福利或服务,从而鼓励和便利了私人投资,形成了一个较好的投资环境,促进了经济增长。而持反对意见的认为,公共支出往往是生产率较低的,为融通政府支出而形成的高税收又会对私人部门的消费和投资造成很大的负面影响,因此,必须缩减政府支出,才能保证经济增长。当然也有人持两者根本就没有关系的观点。     

Disaggregated approach to government spending shocks: a theoretical analysis

We calibrate a dynamic stochastic general equilibrium model that features a transmission mechanism with different types of government spending, while the literature usually treats government spending as a homogenous compound. In this regard, we manage to distinguish between different types of government spending (namely: government investment, government wage component consumption and non-wage component consumption) where each type of spending has a varied role in the economy. The government wage increase has the largest positive effect both on private consumption and output by affecting the economy through the government production. This is a natural consequence of government production being complementary to private consumption in our model. Other two government spending types, namely government non-wage consumption and government investment, also have positive effects on output, whereas their responses on (private) consumption are mostly negative. These results provide an alternative explanation for the wide range of multipliers existing in the literature as our setup enables them to produce different effects on macroeconomic variables.     

Boosting confidence: Is there a role for fiscal policy?

This paper investigates the widely held view that expansionary fiscal policy can boost consumer and business confidence, which will stimulate private spending and sustain economic activity. We find evidence in favor of this conjecture, i.e., cuts in direct taxes generate a positive effect on consumer and business confidence, while the same applies in cases of higher non-wage government consumption. However, higher government wage bills and government investment reduce confidence, with the effect being more pronounced when the Debt to GDP ratio is high, possibly because they entail a permanent increase in the size of the public sector, which would have to be financed by higher future taxes.     

FISCAL POLICY, MACROECONOMIC STABILITY AND FINITE HORIZONS

In this paper we analyse the stabilisation properties of distortionary taxes in a new‐Keynesian model with overlapping generations of finitely lived consumers. In this framework, government debt is part of net wealth and this adds a number of interesting channels through which fiscal policy could affect output and inflation. Output volatility, in the presence of technology shocks, is not substantially affected by the operation of automatic stabilisers, but we find interesting composition effects. While the presence of finitely lived households strengthens the stabilisation performance of distortionary taxes through the reduction of the volatility of consumption, it does so at the cost of more volatile investment and real money balances.     

Debt financing of public investment: On a popular misinterpretation of “the golden rule of public sector borrowing”

In this paper I challenge the proposition that the golden rule of public sector borrowing is consistent with the principle of intertemporal allocative efficiency, in the sense that growth-enhancing public investment justifies a structural public deficit. I demonstrate that in the long run the social opportunity cost of debt-financed public investment exceeds the social opportunity cost of tax financed public investments. This result holds if the social rate of time preference is lower than the interest rate on government borrowing. Thus a benevolent government would use taxes to finance public investment. In the short run, debt financing is justified if public investment has a considerable growth effect on private consumption. This requires a corresponding initial undersupply of public capital.     

TAX DISCOUNTING VS. CROWDING OUT

The “crowding out” effect of debt-financed government spending on the private sector consumption-saving decision and on private investment behavior has been a controversial subject for several years. Do increases in debt-financed government spending stimulate private consumption and saving in the short run, as well as private consumption in subsequent periods? Or does the realization that future taxes must be raised to finance repayment of the debt result in a lack of stimulus for consumption as well as no detrimental impact on subsequent private saving? This article empirically tests for the presence and/or magnitude of tax discounting and crowding out, carefully distinguishing between the two, and decomposes government debt instruments according to their maturities in order to determine impact due to a reorientation of debt structure. The results do not support the existence of tax discounting, suggesting instead that government deficits do stimulate current consumption.     

财政政策对经济增长和收入分配的长期影响效应分析

政府财政政策对经济增长和收入分配有不同的影响,其中,政府消费性支出和投资性支出均对经济增长有正的促进作用,但政府支出却加大了居民收入分配的差距;税收对我国经济增长的影响均为负,其中,间接税缩小了居民收入分配差距,而直接税却拉大了居民的收入分配差距。     

Capital and Consumption Tax Reforms in a Small Open Economy

The effects of a reform in capital and consumption taxes on private welfare and government tax revenue are examined for a small open, capital‐importing economy. A trade‐off between private welfare and tax revenue is encountered in maximizing social welfare. Nonetheless, lowering capital taxes and raising consumption taxes can increase both private welfare and tax revenue if the initial tax rates are not optimal. In addition, a tax reform by this fashion is a likely response to a rise in the foreign rate of return on capital.     

政府公共资本投资的长期经济增长效应

本文首先建立一个包含政府公共资本投资的两部门内生增长模型,并把公共资本投资分为政府物质资本投资和人力资本投资,从而对公共资本投资的长期经济增长效应进行理论分析。结论是,两种形式的公共资本投资对长期经济增长都可能具有正效应也可能具有负效应,取决于民间经济主体消费跨时替代弹性大小。其次,我们利用向量自回归分析框架,对我国1978—2004年间公共资本投资对长期经济增长的影响作实证分析。结论是,我国两种形式的公共资本投资与经济增长之间存在着长期均衡关系,其中政府公共物质资本投资对长期经济增长的正影响更为显著,而政府公共人力资本投资对长期经济增长的正影响较小,且在短期内不利于经济增长。这一结论对我国今后科学制定财政政策和选择公共投资领域都具有重要意义。     

财政分权框架下的财政政策和货币政策

本文扩展了Barro( 1 990 )和Gong和Zou( 2 0 0 2 )的模型 ,讨论财政分权框架下的政府财政政策和货币政策 ,通过消费者行为、地方政府行为和中央政府行为之间Nash均衡解 ,得到了经济增长率和各参数的隐式关系 ,并且通过数值模拟得到经济增长率与各种税收以及政府间转移支付的关系。我们发现经济增长率和收入税的关系是Laffer曲线 ,消费税对经济增长的影响是正的 ,财产税对经济增长的影响是负的。至于货币政策的影响 ,我们发现货币不再是超中性的了 ,供应量增加可以促进经济增长 ,而且经济中的货币的流通程度越高 ,经济增长率越高。最后 ,本文还讨论了多级地方政府的情况 ,分析了不同税收制度的地区对整个经济增长的不同影响。     

Employment and Wages in the Private and Local Government Sectors in a Centralized Fiscal System

This paper discusses the interaction between the local government and private sector in an institutional context consistent with a centralized fiscal system. Under decentralized wage setting in the private sector, the effects of shocks in the two sectors depend on whether private and local public goods are substitutes or complements in the union utility function. Higher wage markup in the local government sector unambiguously decreases government output while the effect on private sector employment is ambiguous. Higher income taxes have ambiguous effects on local government output. Shocks in the private sector can be reinforced through feedback effects from the local government sector. A shift from decentralized to centralized wage setting in the private sector reduces wages and increases employment in both sectors.     

Government expenditure composition and fiscal policy spillovers in small open economies within a monetary union

We examine the implications of government expenditure that is complementary to private consumption, and government investment that can improve the productivity of private capital, in a global DSGE model. We show that government investment can improve an economy’s external competitiveness and stimulate private investment. If governments can finance this investment by reducing consumption that is not complementary to private consumption, then this is ex-ante budget-neutral, provides a small, but persistent stimulus without a deterioration in competitiveness, and leads to lower debt in the medium run. We also examine the cross-border transmission channels of government expenditure shocks in a monetary union when government consumption is complementary to private and public investment is productive. While both assumptions enhance cross-border spillovers, a direct import content is required to generate spillovers similar to those found in the empirical literature.     

Asymmetric output growth effects of government spending: Cross-sectional and panel data evidence

Using a model that accommodates asymmetric adjustments of output growth to changes in growth of government spending, the effects of aggregate and disaggregate government spending variables on output growth are examined. Both cross-section and panel regression estimations are conducted. Robustness of results to joint-endogeneity of output and government spending, alternative conditioning variables, and cointegration is investigated. Aggregate government spending appears to have positive output growth effects particularly in periods of below-trend growth in this variable. The government sector's productivity appears to be higher than non-government sector's productivity when spending growth is below-trend growth and only for non-OECD countries; no differences in sectoral productivities are detected for OECD countries. Government consumption spending has no significant output growth effects, but government investment spending has positive output growth effects particularly when its growth falls below its trend-growth; this favorable effect turns negative when government investment spending growth exceeds its trend-growth. Results are robust across alternative model specifications and estimation methods.     

Fiscal multipliers in good times and bad times

This paper estimates the magnitudes of government spending and tax multipliers within a regime-switching framework for the U.S. economy during the period 1949:1–2006:4. Our results show that the magnitudes of spending multipliers are larger during periods of low economic activity, while the magnitudes of tax multipliers are larger during periods of high economic activity. We also show that the magnitudes of fiscal multipliers got smaller for episodes of low growth, while they got larger for episodes of high growth in the post 1980 period. Analyzing the effects of government spending and taxes on consumption and investment spending indicates that the magnitude of the effects of fiscal shocks on consumption and investment is very small.     

收入分配、需求体制与经济增长*——基于“马克思-凯恩斯-卡莱茨基”理论的经验研究

本文运用1978—2015年省级面板数据分析了我国劳动收入份额变动对消费、投资、净出口以及总需求的长期效应及其与经济增长的关系，对“马克思-凯恩斯-卡莱茨基”（MKK）理论进行检验。结果显示：（1）我国的国内需求体制为工资拉动型，但是包括净出口在内的总需求体制为利润拉动型。（2）劳动收入份额上升对消费具有明显的促进作用，对净出口有明显的抑制作用，但对投资的影响不显著。其原因在于我国政府和国企主导的“逆周期”投资和非利润导向型投资。（3）随着国企改革的深化、民间投资占比提升，我国的国内需求体制有向利润拉动型转型的趋势。相比中部和西部地区，东部沿海地区的需求体制更偏向于利润拉动型。     

Ricardian equivalence and fiscal distortions in the Dominican Republic

This paper tests the Ricardian equivalence hypothesis in the context of the Dominican Republic (DR). The results rejected the Ricardian theorem but a weaker version is shown to have significant implications for the DR. If the government borrows to increase spending, private consumption is crowded out and the economy will suffer in the long run. The outcome is worst if the government borrows to deliver a tax cut. In particular, for every RD$ 1.00 of additional debt incurred to finance government primary spending, private consumption and gross domestic product (GDP) fall by a meaningful RD$ 2.15 and RD$ 1.15 respectively. If the debt is used to finance the tax cut, the fall is RD$ 2.15 in both consumption and output. Interestingly, if the government uses taxes to cover a budget deficit, the effect is neutral and consistent with Ricardian equivalence. The paper argues that fiscal distortions are in part responsible for these multipliers. Distortions are estimated to be 21 % coming from different sources including taxes evasion and fiscal drainage. These findings suggest that the DR could benefit from either reducing the level of fiscal distortions or the size and scope of the Dominican government. If, however, the government continues to pursue an active fiscal role under the current environment, it will generate an unnecessary burden to consumption and economic growth.     

Public investment,taxation, and long-run output in economies with multi-level governments

This paper examines the dynamic effects of taxation and investment on the steady state output level of an economy. A simple neoclassical growth model with different tiers of government is developed. The initial focus is on governments that aim to maximise their citizens' welfare and economic performance by providing consumption goods for private consumption and public capital for private production. It is shown that a long-run per capita output maximising tax rate can be derived and that there also exists an optimal degree of fiscal decentralisation. The analysis then extends to the case where governments attempt instead to maximise their own tax revenue to fund expenditures which do not contribute to the utility of their citizens. Three different cases of taxation arrangement are considered: tax competition, tax sharing, and tax coordination. The modeling shows that intensifying tax competition will lead to an increase in the aggregate tax rate as compared to the cases of sharing and coordination amongst governments. These tax rates are both higher than the long-run per capita output maximising rate that was implied under the welfare maximising government scenario.