Optimal fiscal policy under learning

This paper characterizes optimal fiscal policy when agents learn about future taxation. A benevolent and fully rational government chooses taxes on labor income and state-contingent bonds to finance public spending, considering that private agents form their expectations through a learning algorithm. Facing a trade-off between distortionary taxes and distorted expectations, the Ramsey planner chooses the policy that minimizes the total cost of distortions. The analysis produces two main results. First, the government will use fiscal variables to manipulate expectations, reducing taxes and issuing debt at times of pessimism and doing the opposite at times of optimism. This speeds up learning. Second, the expectation-dependent fiscal plan is also history-dependent, and it prescribes taxes that are not as smooth and more persistent than under rational expectations. These findings are robust to alternative learning algorithms.     

Innovation dynamics and fiscal policy: Implications for growth,asset prices,and welfare

We study the equilibrium implications of different fiscal policies on macroeconomic quantities and welfare by utilizing an endogenous growth model that matches asset pricing data well. The fiscal instruments of interest are (i) subsidies to R&D expenditure, consumption and capital investment, and (ii) cuts in labor and corporate tax rates. Our equilibrium analysis provides new insights on the interplay of innovation dynamics and fiscal policy. Importantly, we find growth and welfare to be inversely related when changing R&D subsidies. However, this depends on how well the model reproduces asset pricing dynamics. Moreover, only subsidies to capital investments and cuts in the corporate tax rate have the potential to increase both growth and welfare.     

Sounding the alarm: Impact of political instability on growth and fiscal health of the Indian economy

A noticeable change evident in the Indian political scenario since the eighties has been a sharp rise in the frequency with which governments have been ousted out of power. This augurs well for Indian democracy as it reflects a ‘political awakening’. Such changes in government, after an election reflect ‘orderly’: transfer of power and are inherent to the democratic form of governance. However, a close scrutiny of the political scenario at the state government level shows that there have been very frequent changes in government between elections. A high frequency of changes in government could be expected to result in frequent reversals or modifications in policy decisions and have a destabilizing effect on the economy. The present study is an empirical exercise undertaken at the level of state governments. It makes a first attempt to examine the impact of political instability on growth and on the fiscal health of the Indian economy. Received: September 25, 2000/Accepted: January 11, 2002 RID="*" ID="*" Sincere thanks to Professors Ajit Karnik and Abhay Pethe for their comments and suggestions. I would also like to thank the two anonymous referees for their insightful comments and suggestions, which have been of great help. The usual disclaimer applies.     

Determinants of discretionary fiscal policy in Central and Eastern Europe

This paper explores economic, political and institutional determinants of discretionary fiscal policy in 11 Central and Eastern European (CEE) countries from 2000 to 2013 and compares discretionary fiscal reactions before and during the global economic crisis. We find that fiscal policy was procyclical to the output gap both before and during the crisis, while no fiscal reaction to the absorption gap was captured. Our results also indicate a negative relationship between the level of public debt and deficits over the entire period and the pre-crisis period, suggesting that rising public debt represented a brake on future deficits. We also find that election cycles affect the fiscal deficit, but only during the pre-crisis period, while no evidence of a relationship between fiscal policy and government fragmentation was captured. We find some evidence that in the pre-crisis period the CEE countries with a fixed exchange rate regime ran lower deficits than those with a floating regime, whereas during the crisis no impact of the exchange rate regime on the fiscal deficit was found. There is also some evidence that an arrangement with the IMF was associated with lower deficits for the entire sample period. However, no impact of EU accession on the fiscal stance was identified.     

Monetary and fiscal policy under deep habits

Allowing habits to be formed at the level of individual goods – deep habits - can radically alter the fiscal policy transmission mechanism as the counter-cyclicality of mark-ups this implies can result in government spending crowding-in rather than crowding-out private consumption in the short run. We explore the robustness of this mechanism to the existence of price discrimination in the supply of goods to the public and private sectors. We then describe optimal monetary and fiscal policy in our New Keynesian economy subject to the additional externality of deep habits and explore the ability of simple policy rules to mimic fully optimal policy. We find that the presence of deep habits at empirically estimated levels can imply large externalities that significantly affect the conduct of monetary and tax policy. However, despite the rise in government spending multipliers implied by deep habits, government spending is barely used as a stabilisation tool under the optimal policy.     

Learning about fiscal policy and the effects of policy uncertainty

In this paper we ask how uncertainty about fiscal policy affects the impact of fiscal policy changes on the economy when the government tries to counteract a deep recession. The agents in our model are uncertain about the conduct of fiscal policy and act as econometricians by estimating fiscal policy rules that might change over time.We find that assuming that agents are not instantaneously aware of the new fiscal policy regime in place leads to substantially more volatility in the short run and persistent differences in average outcomes. We highlight issues that can arise when a policymaker wants to announce a policy change. From a methodological perspective, we introduce a novel way to model learning in the face of discrete policy changes.     

降低我国地区间能源强度水平政策研究

经济对能源的依赖性和能源的供需矛盾已经成为阻碍我国经济持续发展的瓶颈之一。如何提高能源利用效率,降低能源消耗成为摆在我国面前的首要问题。本文从价格、结构、技术进步和地方政府行为等多角度因素进行分析,提出降低我国地区间能源强度水平和其差异的相关政策建议。     

Optimal fiscal and monetary policy with occasionally binding zero bound constraints

This paper studies optimal fiscal and monetary policy when the nominal interest rate is subject to the zero lower bound (ZLB) constraint in a stochastic New Keynesian economy. In the baseline model calibrated to match key features of the U.S. economy, it is optimal for the government to increase its spending when at the ZLB in the stochastic environment by about 60 percent more than it would in the deterministic environment. The presence of uncertainty creates a unique time-consistency problem if the steady state is inefficient. Although access to government spending policy increases welfare in the face of a large deflationary shock, it decreases welfare during normal times as the government reduces the nominal interest rate less aggressively before reaching the ZLB.     

The impact of credit and fiscal policy under a liquidity trap

This study examines the interaction of non-conventional credit policy and fiscal policy when adverse financial conditions drive the economy to a deep contraction and conventional monetary policy becomes ineffective as the policy interest rate reaches its effective lower bound. Consistent with other studies, under counter-cyclical financial intermediation costs, credit easing policies aimed at reducing credit spread ameliorate the response of the economy and lead to a faster recovery. More importantly, I find that expansionary fiscal policy during an episode of liquidity trap is associated with a large multiplier effect that prevents an otherwise deeper and longer recession. Moreover, the large impact of expansionary fiscal policy is maintained even if credit policy is already in place.     

Equilibria under monetary and fiscal policy interactions in a portfolio choice model

This paper studies how the presence of income-taxes changes the properties of general equilibrium models with monetary and fiscal policy interactions. It is found that from a global perspective, the only policy regime that leads to a unique equilibrium is one where fiscal policy is active, i.e. the fiscal theory of the price level regime in Sims (1994). From a local perspective, there are three regimes. In particular, and relative to the previous literature following Leeper (1991), a new third regime exists where a passive fiscal rule combined with a passive monetary rule can still deliver determinacy where the same area of the parameter space would lead to multiple solutions if taxes were lump sum. To obtain the size of the new regime, the paper characterizes analytically the extent to which tax cuts are self-financing and how the distortionary tax Laffer curve looks near the steady state. In the new regime, monetary and fiscal backstops are brought into play so as to rule out off equilibrium dynamics, and inflation can temporarily increase in order to increase seigniorage revenues. With this flexibility, the monetary policy is consistent with the real debt remaining bounded, and the arithmetic that follows is monetarist and unpleasant in the sense of Sargent and Wallace (1981).     

Energy storage strategy analysis based on the Choquet multi-criteria preference aggregation model: The Portuguese case

With the increase in renewable energy generation and its problems related to output instability, storage systems must be implemented in parallel to account for this effect. Therefore, it is valuable to deepen the study of these technologies’ performances in their several application tiers, thus understanding the potential of each alternative, both per tier and as a whole. For this reason, a collaborative multi-criteria decision-aiding framework is proposed to rank the various available options in several layers of the energy storage market, constructed alongside experts and policy-makers from each tier that serve as actors of the decision-making process and using Portugal as a case study. Based on the Choquet multi-criteria preference aggregation model, to the best of the authors’ knowledge, this framework is an unprecedented application in the energy sector. Beyond a critical review of the results, a scenario analysis was performed to explore interesting future possibilities that may aid governments to make decisions in the search for an energy sustainable development. Chemical storage solutions, such as Hydrogen and Methane, as well as several electrochemical batteries, especially Lithium- and Nickel-based ones, were the standout energy storage solutions. Chemical storage was shown to have the desired characteristics for the Long-term grid tier. Meanwhile, batteries, including Redox Flow in the first case, have overperformed in the Microgrid and Mobility tiers. No standout solutions appeared in the Short-term grid tier. Unsurprisingly, the aforementioned chemical storage systems, batteries, and Hot Water have presented themselves as the most politically interesting technologies, due to their multipurpose uses and intrinsic characteristics.     

Lack of confidence,the zero lower bound,and the virtue of fiscal rules

In the presence of the zero lower bound, standard business cycle models with a Taylor-type monetary policy rule are prone to equilibrium multiplicity. A drop in private sector confidence can drive the economy into a liquidity trap without any change in fundamentals. I show, in the context of a standard New Keynesian model, that it is possible to design Ricardian fiscal spending rules that insulate the economy from such expectations-driven liquidity traps. In the case of price adjustment costs, desirable fiscal rules ensure that a drop in confidence does not lead to a decline in real marginal costs. In the case of nominal wage adjustment costs, desirable fiscal spending rules ensure that a drop in confidence does not lead to a decline in the ratio of the marginal rate of substitution between private consumption and hours worked relative to the real wage rate.     

能源、技术与经济增长——基于中国与印度的比较分析

本文在Romer(1990)内生经济增长模型的基础上,以加入能源因子和将技术因子与能源、劳动力相融合为特征,得到更贴近现实的反映经济增长的产出方程式。通过检验中国和印度1965~2004年间的实证数据,运用VAR模型、Johansen协整检验和向量误差修正模型(VECM)等方法,对两国的能源及技术与经济增长的长期关系和短期动态影响进行了比较分析。结果显示:长期中,加入技术变量的能源因素与经济增长的弹性关系,中国表现为负,而在印度为正;技术对于经济增长的总体贡献,印度高于中国。短期中,能源与技术因素的短期波动对中国的经济增长影响较强;而资本的短期波动对印度的经济增长影响较强。     

Dealing with a liquidity trap when government debt matters: Optimal time-consistent monetary and fiscal policy

How does the need to preserve government debt sustainability affect the optimal monetary and fiscal policy response to a liquidity trap? To provide an answer, we employ a small stochastic New Keynesian model with a zero bound on nominal interest rates and characterize optimal time-consistent stabilization policies. We focus on two policy tools, the short-term nominal interest rate and debt-financed government spending. The optimal policy response to a liquidity trap critically depends on the prevailing debt burden. While the optimal amount of government spending is decreasing in the level of outstanding government debt, future monetary policy is becoming more accommodative, triggering a change in private sector expectations that helps to dampen the fall in output and inflation at the outset of the liquidity trap.     

A portfolio approach to endogenous growth: equilibrium and optimal policy

This paper develops a portfolio approach to modeling endogenous growth in continuous time that is especially suitable for addressing fiscal and financial issues in policy design. The analysis focuses on the equilibrium relationship between fiscal and financial policy, rates of return and wealth allocation. We analyze two models. The first is based on the Arrow-Romer model with increasing returns and an external effect of capital on labor productivity. The second draws on Barro's analysis of government spending and endogenous growth. In both models, we study the equilibrium allocation and discuss the optimal fiscal and financial policy.     

The fiscal and monetary response to COVID‐19: What the Great Depression has – and hasn't – taught us

Although some regard the New Deal of the 1930s as exemplifying an aggressive fiscal and monetary response to a severe economic crisis, the US fiscal and monetary policy responses to the COVID‐19 crisis have actually been far more substantial – and, so far, much more effective in reviving aggregate spending. Although many fear that these responses, and the large‐scale increase in bank reserves especially, must eventually cause unwanted inflation, the concurrent sharp decline in money's velocity has thus far more than offset any inflationary effects of money growth, while forward bond prices reflect a general belief that inflation will remain below 2 per cent for at least another decade. Notwithstanding the growth of the Fed's balance sheet, Fed authorities can always check inflation by sufficiently raising the interest return on bank reserves. Nonetheless, recent developments have heightened the risk of ‘fiscal dominance’ of monetary policy at some point in the future.     

Political Instability, Uncertainty and Economics

This paper focuses on the relationship between political instability, policy–making and macroeconomic outcomes. The theoretical section explores various models that explain the effect of instability (and political uncertainty) on growth, budget formation, inflation and monetary policy. The empirical section discusses the evidence on the predictions generated by theoretical models. Preliminary to this discussion, however, is the analysis of a few general issues concerning the specification and estimation of econometric models with political variables. Some new results are then produced on the empirical relevance of theories of strategic use of fiscal deficit.     

Abatement R&D,market imperfections,and environmental policy in an endogenous growth model

We develop an endogenous growth model featuring environmental externalities, abatement R&D, and market imperfections. We compare the economic performances under three distinct regimes that encompass public abatement, private abatement without tax recycling, and private abatement with tax recycling. It is found that the benefit arising from private abatement will be larger if the degree of the firms’ monopoly power is greater. With a reasonably high degree of monopoly power, a mixed abatement policy by which the government recycles environmental tax revenues to subsidize the private abatement R&D is a plausible way of reaching the highest growth rate and welfare.     

有关国家可再生能源促进政策及其启示

为应对能源短缺和环境问题,各国都高度重视可再生能源的发展,本文介绍了英国、德国和美国的可再生能源促进政策的最新进展。在党和政府的高度关注下,我国近年来可再生能源事业获得了巨大的发展,但仍存在一些限制性问题,学习国外的有关经验,对我国可再生能源促进政策的制定具有重要的借鉴意义。     

传统能源产业升级为能源服务业(ESCO)的营销策略探讨

传统能源产业主要指能源技术业的设备经销商、工程整合业者及技术研发者等;能源服务业则除包含传统能源产业项目之外,还包含顾问业务及鉴定、认证、辅导等多种角色。传统能源产业的营运重点主要在产品的销售,是以产品为导向的;而能源服务业则是以服务为导向,强调绩效验证及绩效保证的。传统的能源产业者只有遵循产业发展规律,不断地进行技术和营销创新,逐渐地转型为能源服务业,进行产业升级,向消费者提供有绩效保证的服务,才能真正成为"能源产业服务管理者",才能受到消费者的认可和接受。