EXPANSIONARY VERSUS CONTRACTIONARY GOVERNMENT SPENDING

This article theoretically examines the impact of different forms of government spending on national income in a financially open economy with a significant net international investment position the central bank of which sets domestic interest rates to target inflation. It shows that whether government spending is expansionary or contractionary ultimately depends on the productivity of that expenditure, a result that has major implications for the efficacy of fiscal policy deployed for either stimulus or austerity reasons. The key prediction of the model is that public consumption and unproductive public investment are procyclical, whereas only productive public investment is countercyclical. (JEL F41)     

Effects of monetary and government spending policy on economic inequality

Using detailed micro-level income and expenditure data, we study the effects of monetary and government spending policy shocks on income and expenditure inequality in the US from 1990 to 2018. We find that expansionary monetary and government spending policy shocks systematically decrease income, disposable income and expenditure inequality. There is evidence of time variation on the effects and monetary policy and transfer payment shocks. Various impulse responses suggest that the impacts of the policy shocks increase during and after the Great Recession. The responses of income and expenditures of households at different percentiles suggest that expansionary monetary and government spending policy have a larger positive impact on households with low income and expenditures relative to those at the top of the distribution. We do not find evidence of the significant impact of Quantitative Easing policies on income inequality, however, expenditure inequality appear to increase due to the policies.     

RE-EXAMINING THE EFFECTIVENESS OF STABILISATION POLICY

This paper develops an alternative international macroeconomic model for evaluating the effectiveness of fiscal and monetary policy in stabilising national income under fixed and floating exchange rates. It encompasses national output and income, saving, investment, money and capital flows and linkages between the exchange rate, price levels and real interest rates consistent with international parity conditions. It demonstrates that the nature of government spending is pivotal to the effectiveness of fiscal policy, revealing that, ceteris paribus , higher public consumption expenditure contracts national income and depreciates the exchange rate, whereas higher productive public investment spending has opposite effects. The framework also shows that the effectiveness of fiscal and monetary policy as macroeconomic policy instruments is not ultimately dependent on the exchange rate regime.     

Fiscal policy and economic activity in South Asia

This paper analyzes whether fiscal policy in South Asia amplifies or smoothens business cycle fluctuations. It estimates several econometric models to explore the cyclicality of government spending and tax buoyancy. In South Asia, tax revenue increases less than one to one with changes in gross domestic product (GDP), but public spending increases more than proportionally. For each percentage point change in GDP growth, government expenditure changes by 1.3 percentage points. While changes in tax revenue have no significant impact on economic activity, the government spending multiplier is positive and significant: each additional US dollar (USD) of spending leads to an immediate increase in GDP of 0.2 USD and to an increase of 0.4 USD in the medium run. The impact of public spending on economic activity is entirely due to capital expenditure, which is also more procyclical. Procyclical public spending and a positive expenditure multiplier imply that fiscal policy in South Asia amplifies boom‐and‐bust cycles. These results are in line with those of other emerging markets and developing economies and robust to different model specifications and estimation strategies.     

Decentralisation or patronage: What determines government's allocation of development spending in a unitary country? Evidence from Bangladesh

This paper contributes to the decentralisation and distributive politics literature by empirically investigating the determinants of public expenditure at the sub-national level in Bangladesh. We argue that fragmentation in a unitary developing country may not channel higher resources to local areas. Political motives may instead play a significant role in the allocation process. Using panel data methods and a novel dataset on government's district-wise allocation of annual development expenditure in Bangladesh covering the period from 2005 to 2009, the analysis focuses on the impact of local government fragmentation and tests key political distribution models (the core voter hypothesis, the swing voter hypothesis, and the political alignment theory). The results show that local government fragmentation does not have any significant impact on public spending at the district level. However, the core vote share, local elected representative's political alignment with the ruling party, and the raw number of ministers from a district are all significantly associated with higher expenditure allocation. No evidence was found in support of the swing voter hypothesis. Overall, the findings suggest that political motives matter and that the allocation of developing spending is significantly influenced by political patronage. This may be a signficant obstacle to SDGs progress, as development spending may not be governed by resource delivery mechanisms that effectively target the poor.     

Optimal Fiscal Policy in a Multisector Model: The Price Consequences of Government Spending

This paper investigates optimal fiscal policy in a static multisector model. A Ramsey type planner chooses tax rates on each good type as well as spending levels on each good type subject to an exogenous total expenditure constraint. It is shown that, like taxes, government spending policy has price effects and that these price effects have significant implications for optimal policy. These price effects imply a U shape to the government's objective function and this U shape results in boundary values for the choice of the spending allocation. In particular, it is shown that the optimal allocation of government spending tends to be concentrated on one good rather than spread among many goods.     

Estimating changes in real size of the public sector

A new deflator for total government expenditure can now be derived from major components of the total. Applied to government spending in the US over the past quarter-century , results show near-stability in real size of the public sector.     

Predictive validation of modeled health technology assessment claims: lessons from NICE

Abstract

The use of cost-effectiveness modeling to prioritize healthcare spending has become a key foundation of UK government policy. Although the preferred method of evaluation—cost-utility analysis—is not without its critics, it represents a standard approach that can arguably be used to assess relative value for money across a range of disease types and interventions. A key limitation of economic modeling, however, is that its conclusions hinge on the input assumptions, many of which are derived from randomized controlled trials or meta-analyses that cannot be reliably linked to real-world performance of treatments in a broader clinical context. This means that spending decisions are frequently based on artificial constructs that may project costs and benefits that are significantly at odds with those that are achievable in reality. There is a clear agenda to carry out some form of predictive validation for the model claims, in order to assess not only whether the spending decisions made can be justified post hoc, but also to ensure that budgetary expenditure continues to be allocated in the most rational way. To date, however, no timely, effective system to carry out this testing has been implemented, with the consequence that there is little objective evidence as to whether the prioritization decisions made are actually living up to expectations. This article reviews two unfulfilled initiatives that have been carried out in the UK over the past 20 years, each of which had the potential to address this objective, and considers why they failed to deliver the expected outcomes.     

Taylor rules: Consequences for wealth and income inequality

This paper compares the consequences of “active” vs. “passive” Taylor rules for wealth and income inequality. Since the distinction is operative only along transitional paths, we compare the implications for two forms of government expenditure that generate such transitions. Our results confirm that the contrasting effects obtained previously for the aggregate economy have significant distributional consequences. For an active Taylor rule, whether the government increases its expenditure on consumption, or productively, wealth inequality will increase. Expenditure on the two public goods yields divergent paths for income inequality. Government consumption expenditure raises income inequality; productive government expenditure reduces it. If the Taylor rule is passive, an increase in either form of government expenditure reduces wealth inequality initially and over time. Income inequality initially increases, but declines over time, although remaining above its previous steady-state level.     

Electoral manipulation via voter-friendly spending: Theory and evidence

We present a model of the political budget cycle in which incumbents try to influence voters by changing the composition of government spending, rather than overall spending or revenues. Rational voters may support an incumbent who targets them with spending before the election even though such spending may be due to opportunistic manipulation, because it may also reflect sincere preference of the incumbent for types of spending voters favor. Classifying expenditures into those which are likely targeted to voters and those that are not, we provide evidence supporting our model in data on local public finances for all Colombian municipalities. Our findings indicate both a pre-electoral increase in targeted expenditures, combined with a contraction of other types of expenditure, and a voter response to targeting.     

日本政府财政支出的经济增长效应及启示

政府财政支出与经济增长存在一定的相关关系,但孰为因果莫衷一是。通过对1956-2008年日本政府财政支出与经济增长的协整分析和格兰杰因果关系检验,发现日本政府财政投资性支出与财政消费性支出均与经济增长长期内存在稳定的正向协整关系及单向因果关系,经济增长是财政支出增长的格兰杰因,而财政支出无论是投资性还是消费性支出都不是经济增长的格兰杰因。从这一结论出发,我国应吸取日本的经验教训,在实施积极的财政政策时,要控制规模、优化结构、确保质量、提高效益。     

FISCAL POLICY AND AGGREGATE CONSUMPTION: NEW EVIDENCE FROM THE UNITED STATES

In this paper we estimate the marginal rate of substitution between aggregate per-capita consumption and per-capita government expenditure on goods and services using US quarterly data over the period 1953 to 1993. This estimate is an important input to any attempt to assess the overall effectiveness of fiscal policy since it directly affects the size of the fiscal policy multiplier. Other recent consumption studies which incorporate the effects of government expenditure have failed to establish a stable estimate of the marginal rate of substitution. We argue that this failure results from imposing the unrealistic assumption that this parameter is constant. In contrast, we allow the marginal rate of substitution to depend on both the level and composition of government spending.     

Fiscal policy with direct effects

This paper analyses the effects of fiscal policy in a model where government expenditure and tax changes affect household behaviour directly. This is shown to have implications for both the macroeconomic and welfare effects of changes in government spending.     

财政支出、税收与经济增长

This paper assesses the effect of fiscal policy on economic growth in an AK model with endogenous labor supply. It is found that the structure of taxation and government expenditure could affect the long-run growth rate through their effect on households’ labor-leisure choice, saving-consuming choice and the proportion of government expenditure to GDP. Barro’s (1990) plausible result that the growth rate and the income tax rate have an inverted-U relationship does not always hold. In addition, based on the panel data of 31 provinces from 1997 to 2007, we investigate the link between components of government productive expenditure and economic growth. It is found that the productive expenditure does not always have a positive effect on the growth rate, and its effect exhibits regional differences. The reason is that there is an excess amount of the government productive expenditure in China or the efficiency of the government productive expenditure may be too low.     

MULTIPLIER EFFECTS OF PUBLIC SERVICES IN A TWO‐SECTOR MODEL OF MONOPOLISTIC COMPETITION

In a two‐sector model of monopolistic competition, this paper explores what impacts an expansion of government spending on public services has on national income. In the short run where entry and exit of firms are restricted, a rise in government spending on services like health care (which has only a role of substituting for market services) increases national income, but that on services like elderly care (which has not only this role but also another role of contributing to home production of services) decreases it. These results are reversed in the long run. Welfare effects of public services are also examined.     

财政支出分权如何影响政府支出预算偏离*

政府支出决算与预算的差异可称之为支出预算偏离，其大小直接关系到现代预算制度的建设和积极财政政策提质增效的效果。预算最大化理论指出地方政府追求自由裁量预算的最大化，这会导致预算支出大于决算支出，而财政支出分权则便利了地方政府追求自由裁量预算最大化的条件，因此，财政支出分权是导致支出预算偏离的一个重要因素。利用1994—2017年全省层面和市县加总层面的财政预决算数据，本文发现，财政支出分权程度越高，政府支出预算偏离的程度也越大。不同形式的稳健性检验较好地支持了上述结论。此外，经济发展水平和财政透明度能够降低财政支出分权对预算偏离影响的程度。合理调整不同层级政府之间的事权，建立事权与支出责任相匹配的财政体制，适度加强中央事权和支出责任，将有效降低政府支出预算偏离的程度。     

财政支出分权如何影响政府支出预算偏离*

政府支出决算与预算的差异可称之为支出预算偏离，其大小直接关系到现代预算制度的建设和积极财政政策提质增效的效果。预算最大化理论指出地方政府追求自由裁量预算的最大化，这会导致预算支出大于决算支出，而财政支出分权则便利了地方政府追求自由裁量预算最大化的条件，因此，财政支出分权是导致支出预算偏离的一个重要因素。利用1994—2017年全省层面和市县加总层面的财政预决算数据，本文发现，财政支出分权程度越高，政府支出预算偏离的程度也越大。不同形式的稳健性检验较好地支持了上述结论。此外，经济发展水平和财政透明度能够降低财政支出分权对预算偏离影响的程度。合理调整不同层级政府之间的事权，建立事权与支出责任相匹配的财政体制，适度加强中央事权和支出责任，将有效降低政府支出预算偏离的程度。     

Debt and deficit fluctuations and the structure of bond markets

We analyse the implications of optimal taxation for the stochastic behaviour of debt. We show that when a government pursues an optimal fiscal policy under complete markets, the value of debt has the same or less persistence than other variables in the economy and it declines in response to shocks that cause the deficit to increase. By contrast, under incomplete markets debt shows more persistence than other variables and it increases in response to shocks that cause a higher deficit. Data for US government debt reveals diametrically opposite results from those of complete markets and is much more supportive of bond market incompleteness.     

Economic growth,repression, and state expenditure in non-democratic regimes

This paper examines how economic growth affects government spending in non-democracies. A robust finding is that positive growth induces a significant increase in defence spending but a decrease in non-defence spending in dictatorships, with little effect in democracies. Government spending is slightly sensitive to negative growth across regimes. Higher growth rate in a country than its neighbours induces more spending than their average. Corruption causes a reduction in defence spending but an increase in non-defence spending. Primary education stimulates non-defence spending but reduces defence expenditure, secondary education causing the opposite effect. An under-developed country spends less than a developed country.     

FISCAL EXPENDITURE AND INDUSTRIAL LAND PRICE IN CHINA: THEORY AND EVIDENCE

This paper aims to discover the mechanism behind the positive correlation between local fiscal expenditure and industrial land price in China, a stylized fact discovered by bivariate and regression analyses. The model shows that if the positive externality of government expenditure on growth is sufficiently high, the local government has an incentive to increase public spending in exchange for the reduced demand for industrial land by charging a higher markup and driving up the industrial land price. Therefore, we observe a positive correlation between the local fiscal expenditure and industrial land price. (JEL D42, H72, R51)