Bank credit and debt,income, and causality: The Sims test on measures of credit

By employing the Sims test this study examines the exogeneity, or casual ordering, of bank credit and two measures of debt from the US Federal Reserve Flow of Funds Accounts. Evidence presented here suggests that Bank Credit and Funds Raised by Private Domestic Nonfinancial Sectors are not appropriate targets. The Sims test of causality clearly indicates undirectional causality running from Total Funds Raised by Private Domestic Nonfinancial Sectors to spending.     

Money,national debt,and economic growth

This paper develops a dynamic model which allows for government spending, taxation, and the endogeneity of the money supply. As an example of an application of our framework, we consider the well known stability problem of the two asset (money and physical assets) neoclassical “money-and-growth” literature. We conclude, among other things, that the usual saddle-point instability result under myopic perfect foresight with proportional savings behavior can be reversed by introducing a third asset (securities). It is further argued that this result is “robust” as it holds under various policy rules (including the traditional case of national debt growing at a constant rate).     

Government size,government debt and globalization

This article empirically investigates the effect of globalization on government size and debt. Using panel heterogeneous cointegration techniques to a panel of developing and developed countries, it finds that globalization reduces government size and debt. In terms of components of globalization, government size is found to increase with trade openness but decreases with financial, social and political globalization. On the other hand, government debt increases with financial and trade openness but decreases with social and political globalization. The evidence is robust to different estimation methods and different samples. Our data also indicate unidirectional causality running from globalization measures to government size and debt.     

Government consumption,government debt and economic growth

This paper compares the effects of government consumption and government debt on economic growth using data from 83 countries, including both developed and developing markets, over the period from 1960 to 2014. Linear regressions reveal that the negative effects of government consumption are relatively higher than the negative effects of government debt. A nonlinear investigation further suggests that the restrictions on government expenditure to prevent negative growth are more important for countries with lower trade openness, lower inflation, or greater financial depth, whereas the restrictions on government debt are shown to be more important for countries with higher trade openness, lower inflation or greater financial depth.     

Government debt maturity and debt dynamics in euro area countries

This paper studies the impact of debt maturity on the dynamics of sovereign debt of Euro Area (EA) countries. Due to lack of data, this key issue had not been studied before. Thus, my first contribution is to build a new comprehensive database of sovereign debt stocks and yields, at all different maturities, for six EA countries in 1991–2013: Belgium, Finland, France, Germany, Italy and Spain. In general, since 1991, interests rates in the EA have fallen while Treasuries in the region extended debt maturity; thus, an increasing number of long-term bondholders experienced large capital gains. I show with counterfactual simulations the effect of a different maturity structure on the evolution of debt. My analysis suggests that extending debt maturity in 2013–2015 would result in lower debt ratios by 2022. I also estimate the impact on EA debt-to-GDP ratios induced by changes in current and future inflation. My estimates indicate that higher (lower) inflation in EA countries would lower (raise) their fiscal burden much more than in the US.     

Green national income and expenditure

Distinguishing between national income and expenditure helps to shed light on some issues in green national accounting, including capital gains. Although their total is the same, different types of depreciation should be defined differently in the income and expenditure accounts. For example, there are two ways to define the depletion of non-renewable resources. If depletion is defined as the resource rent, the unit value of the resource stock exceeds the current rent. If resource rent is viewed in terms of the resource's contribution to national income, the stock can be valued at the current rent but depletion is less than resource rent. JEL classification: E20, Q30
Revenus et dépenses nationaux verts . Le fait de distinguer le revenu national et la dépense nationale aide àéclairer certains problèmes dans la comptabilité nationale verte, y compris en ce qui a trait aux gains de capitaux. Même si leur total est le même, différents types d'amortissement devraient être utilisés dans les comptes de revenus et de dépenses. Par exemple, il y a deux manières de définir l'épuisement des ressources non-renouvelables. Si l'épuisement est défini par la rente sur la ressource, alors la valeur unitaire du stock de ressource est plus grande que la rente courante. Si la rente de la ressource est considérée comme la contribution de la ressource au revenu national, le stock peut être évalué au niveau de la rente courante, mais alors l'épuisement est moins que la rente de la ressource.     

Public investment,national debt,and economic growth: The role of debt finance under dynamic inefficiency

Public investment is a central issue in the dynamic analyses of fiscal policy and economic growth. Debt financing for public investment and its effects have recently received great attention because interest rates have been low, almost invariably remaining below economic growth rates. This paper presents examination of the effects of debt-financed public investment subject to a simple fiscal rule in an overlapping generations model with public capital. This topic includes capital budgeting and the debt–deficit criterion of the Maastricht treaty. We show herein that debt financing for public investment enhances economic growth if an economy is dynamically inefficient and if public capital has a sufficiently large productivity effect. Moreover, it reduces economic growth rates in a dynamically efficient economy. Debt and growth can have a monotonic or non-monotonic relation, depending on the steady-state interest rate, growth rate, and productivity effect of public investment. The findings indicate that debt–growth relations match with controversial empirical evidence. Furthermore, existing generations choose perfect debt finance if dynamic inefficiency exists. In contrast, a balanced budget is preferred in a dynamically efficient economy with low productivity effects of public capital. However, an economy with high productivity effects of public capital might cho ose debt financing. This paper contributes to the elucidation of currently emphasized issues of public investment.     

Government expenditure,external and domestic public debt,and economic growth

This paper analyzes the relationship between government expenditure, tax on returns to assets, public debt, and growth in an endogenous growth model. Public debt is composed of two components, domestic debt and external debt. We show conditions for existence, uniqueness, and multiplicity of the steady states. More precisely, existence of steady state requires a sufficiently high productivity and a sufficiently low tax on returns to assets. We also provide the effects of an increase in the tax rate on returns to assets on the steady state. In particular, the relation between public spending and the tax rate has a bell shape. Domestic debt unambiguously increases with tax whereas external debt displays an inverted U‐shaped curve. A high tax rate leads to a reallocation of public debt in favor of domestic debt (to the detriment of external debt). The effect of taxation on consumption (and production) also displays a nonlinear pattern when the output elasticity of capital is lower than unity (the effect is monotonously increasing if this elasticity is unity). We also derive the conditions under which a tax increase can boost or reduce the balanced growth rate.     

Religiosity and income: a panel cointegration and causality analysis

In this article, we examine the long-run relationship between religiosity and income using retrospective data on church attendance rates for a panel of countries from 1930 to 1990. We employ panel cointegration and causality techniques to control for omitted variable and endogeneity bias and test for the direction of causality. We show that there exists a negative long-run relationship between the level of religiosity, measured by church attendance, and the level of income, measured by the log of GDP per capita. The result is robust to alternative estimation methods, potential outliers, different samples, different measures of church attendance and alternative specifications of the income variable. Long-run causality runs in both directions, higher income leads to declining religiosity and declining religiosity leads to higher income.     

Temporal causality and the dynamics of democracy,emigration and real income in Fiji

This study is the first to explore temporal causality between democracy, emigration and real income in Fiji within a multivariate cointegration model. We find three long run relationships between democracy, emigration and real income. In the long run there is evidence that migration and democracy Granger cause real GDP in Fiji; real GDP and democracy Granger cause migration from Fiji and that real GDP and migration Granger cause democracy in Fiji. In the short run we find unidirectional Granger causality running from migration to real GDP and from democracy to real GDP, but neutrality between democracy and migration in the short run. We also extend the analysis to examine the degree of exogeneity of the variables beyond the sample period through considering the decomposition of variance and impulse response functions.     

Government revenue,government expenditure,and temporal causality: evidence from China

Dissatisfied with little evidence provided on various hypotheses concerning the revenue-expenditure relation in China, this paper is an empirical endeavour to fill the gap through a battery of econometric tests for causality based on vector error correction and vector autoregression models. A more comprehensive testing strategy for unit roots and cointegration has been suggested, and a bidirectional causality pattern has been found in China's government finance. The paper thus concludes that attempts simply to change revenue or expenditure or both without taking into account of the interdependence between the two may be counter-productive, and the effects on aggregate demand of government debt-financing in the presence of inflation may not be as detrimental as some economists would expect.     

Government debt and optimal monetary and fiscal policy

How do different levels of government debt affect the optimal conduct of monetary and fiscal policies? And what do these optimal policies imply for the evolution of government debt over time? To provide an answer, this paper studies a standard monetary policy model with nominal rigidities and monopolistic competition and adds to it a fiscal authority that issues nominal non-state contingent debt, levies distortionary labor income taxes and determines the level of public goods provision. Higher government debt levels make it optimal to reduce public spending, so as to dampen the adverse incentive effects of distortionary taxes, but also strongly influence the optimal stabilization response following technology shocks. In particular, higher debt levels give rise to larger risks to the fiscal budget and to tax rates. This makes it optimal to reduce government debt over time. The optimal speed of debt reduction is missed when using first-order approximations to optimal policies, but is shown to be quantitatively significant in a second-order approximation, especially when technology movements are largely unpredictable in nature.     

Government debt spillovers and creditworthiness in a federation

Estimates are presented for the impact of debt accumulation by the central and subcentral governments of a federation on the creditworthiness of other federation member governments. The estimates, calculated using an ordered probit model and Canadian provincial data, indicate that debt accumulation by the central government has reduced the creditworthiness of indebted provincial governments. Interprovincial debt accumulation effects are negative but relatively small, except for the debt of the largest province, which has a strong positive effect on the creditworthiness of the other provinces. These findings may have implications for other federations and associated jurisdictions, such as the European Union. JEL Classification: H63, F36
Les effets de retombée de la dette gouvernementale et la cote de crédit dans une fédération. On calcule l'impact de l'accumulation de la dette par les gouvernements fédéral et sub-fédéraux dans une fédération sur la cote de crédit des autres gouvernements de la fédération. Ces calibrations, à l'aide d'un modèle probit en utilisant les données provinciales canadiennes, montrent que l'accumulation de la dette par le gouvernement central a réduit la cote de crédit des gouvernements provinciaux endettés. Les effets trans-provinciaux de l'accumulation de la dette sont négatifs mais relativement faibles, sauf dans le cas de la province la plus grande, laquelle a un fort effet sur la cote de crédit des autres provinces. Ces résultats peuvent avoir des implications pour d'autres fédérations comme l'Union Européenne.     

Government debt,inflation dynamics and the transmission of fiscal policy shocks

We analyze the influence of the fiscal position on the transmission of government spending shocks in a New Keynesian model. We find that once we allow for positive levels of government debt in the steady state, the size of the fiscal multiplier depends strongly on the horizon at which the multiplier is evaluated. While the long-run effect of a fiscal policy innovation is typically of a similar order of magnitude as in Galí et al. (2007), short-run multipliers differ substantially. The reason for this non-monotonic behavior is the interaction between the dynamics of the inflation rate and the debt level in real terms for sufficiently high levels of government debt in the steady state.     

The stability assumption in tests of causality between money and income

This note argues that structural stability is an important condition for tests of Grangercausality. Despite this fact the standard causality tests are sometimes applied to data for which structural stability cannot be assumed a priori. Therefore the stability of GNP/M1 systems of the U.S., Canada, and West Germany in the aftermath of the 1973/74 oil crisis is analyzed using formal statistical tests. Prediction tests are particularly useful for that purpose. The stability of the model for Canadian data is rejected whereas stability is not rejected for the U.S. and West Germany.     

Money,income and sterilization: tests for causality in the oil economy of Kuwait

The purpose of this investigation is to provide some evidence on two widely held hypotheses dominating monetary analysis in the small oil economy of Kuwait and other Gulf states. The first posits that causality should run from money to income, while the second emphasizes the neutral impact of external transactions on the domestic money supply.     

Revisit causal nexus between military spending and debt: A panel causality test

This study revisits the causal relationship between military spending and debt burden in 11 OECD countries via a panel causality analysis that accounts for both cross-sectional dependence and heterogeneity across countries. Our empirical results indicate unidirectional causality from military spending to debt burden for Japan, Portugal, and the US; one-way causality from debt burden to military spending for both Canada and the UK; bidirectional causality for Spain; and for the rest of countries, we do not find any relationship between military spending and debt burden. The empirical evidence does not provide consistent results regarding the causal relationship between military spending and debt burden in these 11 OECD countries.     

On the relationship between fertility and public national debt

Public debt and fertility are two issues of major concern in the current economic policy debate, especially in countries with below-replacement-fertility and large debt (which appears further enlarged as a consequence of the recent world financial distress 2008–2009). In this paper we show that, at the steady state, public debt is in general harmful for fertility, in that debt issuing almost ever crowds fertility. The relationship is however reversed if debt is sufficiently low and the share of capital (labor) in the economy is sufficiently low (high). Hence, our analysis would recommend that developed, capital intensive economies (such as OECD countries) aiming at a fertility recovery should reduce national debt, while developing, labor intensive economies, aiming at reducing fertility, should increase (reduce) national debt only if they are debt virtuous (vicious).