THE GREAT RECESSION, “RAINY DAY” FUNDS,AND COUNTERCYCLICAL FISCAL POLICY IN LATIN AMERICA

We examine the fiscal policy options that were available to Latin American countries at the onset of the current global economic crisis, concluding that most of the major countries in the region possessed the fiscal space (as measured by credible fiscal sustainability and debt headroom) to run prudent countercyclical fiscal deficits. For those countries, the appropriate policy response involved a constrained fiscal expansion focused on productive public spending and financed by drawing on the “rainy day” funds—in the form of large stocks of foreign exchange reserves—that they accumulated in prior years, rather than by market borrowing. (JEL E62, E63, F34)     

公共危机与地方财政运行机制的重构——基于财政机会主义的视角

近年来,我国频繁发生大型公共危机,严重影响了民众的生命财产安全与社会经济的可持续发展。我国公共危机防治的困境在一定程度上导源于地方财政的机会主义行为,而我国政府间激励约束机制不合理和财政管理体制不健全则是地方财政机会主义普遍存在的重要根源。从现实来看,地方财政机会主义的普遍存在不仅导致了公共危机的形成,而且加大了公共危机的治理难度,放大了其对社会经济运行的负面影响。为此,我国需要重构地方财政运行机制,建立有效的激励约束机制,合理界分政府间公共危机的防治责任,为地方政府配置有效的财力,并建立完善的地方财政监督机制。     

Fiscal consolidations and electoral outcomes in emerging economies: Does the policy mix matter? Macro and micro level evidence from Latin America

Do voters punish governments that introduce fiscal “austerity” measures? If so, does voter response vary according to the composition of fiscal adjustments? The empirical literature on the political economy of fiscal adjustments, which is mostly OECD-based, argues that consolidations do not have significant electoral consequences. In contrast, we find that voters punish fiscal consolidations at the polls in Latin America. To explain this result, we focus on the way fiscal adjustments episodes are implemented, both in terms of their design (taxes vs. spending) and timing. Such episodes rely fundamentally on increasing tax rates and bases of indirect taxes (such as the VAT) that hit broad segments of the population. Moreover, these policies are often implemented when politicians have no choice but to consolidate, that is, under severe economic circumstances. These macro results are corroborated with micro evidence from an original survey experiment that measures voter’s fiscal policy preferences over the business cycle in seven countries across Latin America. The experimental evidence shows that respondents prefer expenditure cuts to tax increases during downturns, which is the opposite of the type of consolidations that countries typically pursue.     

Regulation and rent‐seeking: The role of the distribution of political and economic power

It is shown that the joint distribution of economic and political power plays a key role in determining regulatory and tax policies of national and subnational governments. If both economic and political power are evenly distributed across individuals, then regulatory and tax policies are efficient, but if they are unevenly distributed and positively correlated, then regulatory policy is used by subnational governments to redistribute income in favor of individuals with higher economic and political power at the expense of productivity and output. Consequently, the national government has to raise the tax rate to finance public expenditure. Moreover, if there exists a positive correlation between economic and political power, then the higher the fiscal gap, the larger the gap between equilibrium and efficient policies because subnational governments underestimate more the fall of public revenues caused by inefficient policies.     

Fiscal adjustments and economic performing: a comparative study

The empirical relationship among fiscal contractions, permanent improvement in public finances and short-run economic performance is examined using a sample of 14 European countries over the last three decades. The actual experience of policy-making has taught that only the adjustments that relied heavily on primary expenditure cuts and were implemented over a relatively long time span were able to achieve a long lasting reduction of public liabilities. Indeed, during these consolidations, tax increase amounted to a small fraction of the total adjustment. Furthermore, though they unfolded over a longer period with respect to the unsuccessful ones, the overall budget cut was not larger. As regards the macroeconomic impact, successful episodes tended to be associated with improved economic performance. During the adjustment period and in the following two years, the economies experienced strong consumption and investment growth, reduced unemployment, better international competitiveness and falling interest rates. This empirical evidence is here interpreted via the theory known as expectation view of fiscal policy.     

Indirect taxes: A comparative study of Greece and the EEC

Financing ever-growing governmental services in a non-inflationary manner is one of the main problems of public policy for all governments, including those of Greece and the EEC countries. The accession of Greece to the EEC would require tax reforms, especially in indirect taxes, which include tariffs and turnover or value added taxes. A regression analysis for the postwar years indicate that ‘imports’ is a far more important variable in explaining changes in indirect taxes than ‘private consumption’ and ‘inflation’. Such empirical findings may be useful to related policies on public finance of the countries considered, as well as other countries with similar economic problems.     

不动产税应成为我国市级财政的主体税种——以成都市为例

不完善的分税制财政体制经过十多年的运行,其负面影响日渐突出,已经影响到经济发展和社会稳定.本文根据我国地方财政运行的现状,结合房地产税的理论分析,提出房地产税改革的主要目标应定位为地方政府提供稳定可持续的收入来源,并以成都市为案例来说明改革后的不动产税是否能够成为市级财政的主体税种.     

Financial development,institutional quality and maximizing-growth trade-off in government finance

This paper studies monetary and fiscal policies in an endogenous growth model with transaction costs. We show that the relation between long-run economic growth and both monetary and fiscal policies is subject to threshold effects, a result that gives account of a number of recent empirical findings. Furthermore, the model shows that, to finance public expenditures, growth-maximizing governments must choose relatively high seigniorage (respectively income taxation), if “institutional quality” and “financial development” indicators are low (respectively high). Thus, our model may explain why some governments resort to seigniorage and inflationary finance, and others rather resort to high tax rates, as a result of growth-maximizing strategies in different structural environments (notably concerning institutional and financial development contexts). In addition, the model allows examining how the optimal mix of government finance changes in response to different public debt contexts. A short empirical section confirms our theoretical results.     

中国地方公共支出规模的膨胀性、成因及其控制

各国公共支出规模膨胀过程中的潜在问题,特别是欧洲一些国家的财政危机引起了人们的广泛关注。所以,研究在调整社会福利的同时降低政府公共支出规模的问题,就显得非常重要。根据中国省级政府的面板数据研究,结果发现:城市化对于政府支出规模具有明显的扩张效应,公共教育需求却具有明显的规模经济效应。基于实证分析的结果,未来中国的地方财政必须要优化支出结构、强化支出管理,在"有增有减、减大于增"的政策取向上进行改革。     

PUBLIC FINANCE AND INDIVIDUAL PREFERENCES OVER GLOBALIZATION STRATEGIES

Do preferences toward globalization strategies vary across public‐finance regimes? In this paper, we use data on individual preferences toward immigration and trade policy to examine how pre‐tax and post‐tax cleavages differ across globalization strategies and state fiscal jurisdictions. High exposure to immigrant fiscal pressures reduces support for freer immigration among U.S. natives, especially the more skilled. The magnitude of this post‐tax fiscal cleavage is comparable to the pre‐tax labor‐market effects of skill itself. There is no public‐finance variation in opinion over trade policy, consistent with U.S. trade policy having negligible fiscal‐policy impacts. Public finance thus appears to shape opinions toward globalization strategies.     

Governments under influence: Country interactions in discretionary fiscal policy

We investigate the interactions between countries, and their effect on the discretionary (i.e. the cyclically-adjusted and interest-adjusted) components of national fiscal policies, observing and investigating the parts of public spending and tax receipts over which governments retain full discretion. Our sample includes 18 OECD countries for the period 1974–2008. First, we construct a measure of a discretionary fiscal policy from the residual component in a VAR model. We then compute this measure for the full sample. Using these data, we next run estimations of the discretionary fiscal policy interactions among the countries in the sample. Our results show that public decisions are affected by interactions between neighbor countries, neighborhood being defined by economic leadership as well as geography. We found evidence of opportunistic behavior by OECD country governments in relation to discretionary public spending. Finally, our estimation results reveal the crucial leadership role played by the USA in relation to discretionary fiscal policy decisions in Europe.     

Testing the taxmimicking versus expenditure spill-over hypotheses using English data

Spatial interaction among local governments in tax setting and public spending decisions is receiving increasing attention in the applied public economics literature. Spatial interaction models rely on the presence of an externality from local budget making: in traditional public finance models, external effects originate either from interjurisdictional resource flows due to tax competition for a mobile base, or from local public expenditure spill-overs into neighbouring jurisdictions. However, the recent political agency/yardstick competition literature has stressed the role of ‘informational’ externalities between neighbouring jurisdictions, and predicted tax mimicry at the local level. The actual relevance of the above hypotheses clearly needs to be assessed empirically. In this paper, an attempt is made at discriminating between alternative sources of local fiscal interaction, by using data on the English municipal authorities' budgets. While both public spending levels and local property tax rates exhibit considerable positive spatial autocorrelation, maximum likelihood and instrumental variables estimation results suggest that the interdependence among local governments can be attributed to mimicking behaviour in local property tax setting.     

关于地方公共财政支出体系的思考

近年来,我国地方政府一直致力于构建公共财政体系,其中心环节就是建立科学、规范的地方公共财政支出体系。构建地方公共财政支出体系是个空间立体模型,主要包括公共财政支出的框架和框架里的内容。公共财政支出框架主要是指横向的公共财政支出范围、纵向的财政支出规模;框架里的内容则主要是指地方财政支出结构。     

Financing government investment and its implications for public capital: A small open economy perspective

Expenditure reductions played a key role in many small open economies during fiscal consolidation, with large declines in public investment. This led to a reduction in public capital stock and affected the competitiveness of these economies. After the sovereign debt crisis, the governments that consider increasing investment to replenish the public capital stock have limited fiscal space and have to avoid external imbalances. We show that using budget-neutral investment spending can generate long-term benefits of higher public capital stock while at the same time limiting negative consequences for the public finances and the trade balance. The best way of financing government investment, which preserves fiscal and trade balances, and increases welfare, is by reducing other government spending. The second-best is financing investment with value-added tax. Financing with debt worsens fiscal and trade balances, while using distortionary labour taxes reduces labour supply, increases wage costs and worsens the trade deficit in the short run.     

The dual nature of public goods and congestion: the role of fiscal policy revisited

Abstract The role of fiscal policy is examined when public goods provide both productive and utility services. In the presence of congestion, the consumption tax is shown to be distortionary. Optimal fiscal policy involves using consumption‐based instruments in conjunction with the income tax. An income tax‐financed increase in government spending dominates both lump‐sum and consumption tax‐financing. Replacing the lump‐sum tax with an income tax to finance a given level of spending dominates introducing an equivalent consumption tax. These results contrast sharply with the literature, where the consumption tax is generally viewed as the least distortionary source of public finance.     

EXCHANGE RATE REGIMES AND MONETARY COOPERATION: LESSONS FROM EAST ASIA AND LATIN AMERICA*

This paper analyses the mechanisms of, and draws lessons from, currency crises in Asian and Latin American countries in the 1990s and 2000s. In Asian countries fiscal deficits were insignificant in size, and were not part of a crisis trigger, while in Latin America they played a major role in the crisis story. Crisis management by international financial institutions has been evolving over the last 10 years, and private‐sector involvement (PSI) has occupied centre‐stage in efforts to reform the international financial architecture. Sovereign debts, a focus of PSI discussions, were neither a cause nor a propagation of the Asian crises.     

Tax base variability and procyclical fiscal policy in developing countries

Based on a sample of 56 countries, we show that fiscal policy in the G7 countries appears to be acyclical while fiscal policy in developing countries is procyclical (i.e., fiscal policy is expansionary in good times and contractionary in bad times). To explain this puzzle, we develop an optimal fiscal policy model in which running budget surpluses is costly because they create pressures to increase public spending. Given this distortion, a government that faces large fluctuations in the tax base–as is the case for developing countries–will find it optimal to run a procyclical fiscal policy.     

Corruption and public finance: an IMF perspective

Public finance should be a means whereby governments in low-income countries are able to increase economic growth and end poverty. Corruption, however, reduces tax revenue and makes public expenditure policies ineffective for achieving social objectives. The papers in this volume, which is sponsored by the Fiscal Affairs Department of the International Monetary Fund (IMF), describe how corruption makes public finance ineffective in promoting economic development.     

Municipal Finance in Poland,the Slovak Republic,the Czech Republic and Hungary: Institutional Framework and Recent Development

The recent process of political and economic transition in eastern European countries has not only contributed to the decentralisation of political structure but also significantly enhanced the fiscal autonomy of municipalities in these countries. In this context many similar types of public activities have recently been assigned to local governments, and some taxes were also declared to be local taxes. To be sure, this type of fiscal decentralisation has caused some additional problems, particularly for safeguarding the quality of publicly provided goods and services and for co-ordinating intergovernmental fiscal transfers between the central and local governments. For instance, some criticise that many small-sized municipalities in the transition economies have suffered from financial bottlenecks and have not been able to receive sufficient financial support from the central government. However, such a fiscal devolution trend appears to continue. This study primarily deals with issues surrounding the impact of national fiscal policy and the regulatory framework on local governments' expenditure behaviour and their ability to mobilise necessary revenues under the particular consideration of the institutional and administrative co-operation with the central government and of the less well-developed financial market in Poland, the Slovak Republic, the Czech Republic and Hungary.     

Fiscal Policy and Equitable Growth

This paper continues the study of optimal fiscal policy in a growing economy by exploring a case in which the government simultaneously provides three main categories of expenditures with distortionary tax finance: public production services, public consumption services, and state-contingent redistributive transfers. The paper shows that in a general-equilibrium model with given exogenous fiscal policy, a nonmonotonic relation exists between the suboptimal long-run growth rate in a competitive economy and distortionary tax rates. When fiscal policy is endogenously chosen at a social optimum, the relation between the rate of growth and tax rates is always negative. These two properties suggest that an alternative set of government policy instruments affects the response of private sector investment to fiscal policy. Moreover, the different properties of exogenous and endogenous fiscal policy theoretically account for the difference in the relation between economic growth and fiscal policy in empirical studies.