A Review of Public Expenditures in Bangladesh: Evidence on Sustainability and Cyclicality

Kenya’s ballooning public debt has been a major concern in the recent past. In fact, there are fears about the country’s debt sustainability levels. Last year, the International Monetary Fund raised Kenya’s risk of debt distress to high from moderate. What this means is that although the country is not currently facing any repayment difficulties, it may have difficulties servicing its debt due to the slowdown in economic activity. The downgrade from moderate to high risk has been attributed to the outbreak of the COVID-19 pandemic. Over the past few years, the country’s public debt has grown exponentially. The outstanding total public debt and publicly guaranteed public debt at the end of the 2019/2020 financial year was Kshs. 6.7 trillion. This is an equivalent of 65.6 per cent of the Gross Domestic Product. The percentage is way above the 50 per cent level recommended by the World Bank.The increase in public debt has also seen an increase in publicly guaranteed debt and other contingent liabilities. In the financial year 2019/2020, public guaranteed debt increased by Kshs. 5,841 million to Kshs. 165,245 million from Ksh. 159,408 million at the end of June 2019. In the same period, the government has had to pay Kshs. 661.2 million as called up guaranteed debt debts owed by public enterprises that were in financial distress. From the above, it is clear that contingent liabilities form a substantial part of the public debt. However, they are not given much attention. This paper explores the reporting of these liabilities.

Influence Of Budget Deficit On Economic Growth: The Case Of The Republic Of Macedonia

The global crisis of 2008–2009 focused attention on the role of fi scal policy at times of collapsing aggregate demand. Concerns about experiencing a reincarnation of the great depression induced the Organization for Economic Cooperation and Development (OECD) (highincome group) and emerging market countries to invoke extraordinary policies for extraordinary times. Countries adopted sizable fi scal stimuli, augmented by unprecedented monetary expansions supported by elastic swap lines between the Federal Reserve and the European Central Bank, and between the Fed and four emerging markets. The fl ight to quality and the shortage of dollar liquidity posed a special challenge for emerging markets, inducing them to supplement these policies with both large sales of foreign currencies at the height of the crisis and with sizable depreciations. Yet there has been a remarkable heterogeneity in the magnitudes of the fi scal stimuli, and of the exchange rate depreciation. The differential patterns of response are traced in table 1, summarizing the fi scal stimulus/GDP and the depreciation rate in 32 countries, chosen by data availability. The fi rst three columns overview the crisis related fi scal stimulus / GDP, 2009–2011, in OECD countries and emerging markets. The crisis led to a signifi cant fi scal stimulus in the United States, Japan, and Germany, the magnitude of which increased from 2009 to 2010, refl ecting various lags associated with fi scal policy. The fourth and the fi fth columns report the massive “bailout” transfers to the banking system in the United States, Germany, and the United Kingdom that attempted to stabilize the fi nancial panic. It is noteworthy that the size of

As nations grapple with the challenges posed by increasing debt burdens, finding out the intricacies between macroeconomic indicators would give insights into how household consumption and foreign investments are affected by the high national debt level, and how they move along with the identified variables such as tax revenues and economic health of the country. The goal of this paper is to focus on the implications of high external debt for macroeconomic variables and find out the variables’ effects in the short term and the long term by using a quantitative approach or method. The researchers intend to find out if the household consumption expenditure is influenced by high national debt, tax revenues, total economic health, and foreign investments, or otherwise, finding out as well if the foreign investments are influenced by high national debt, tax revenues, total economic health, and household consumption expenditure or not. The paper also has its constraints given that related literature is limited in terms of the immediate relationship of the variables that the researchers want to study. With the knowledge that high national debt would have a toll on the country’s economic performance or the gross domestic product (GDP), there is the perception of high debt having an impact on household consumption or consumer spending that can alter the living conditions or reduce incomes of the people, given that the government would need to look for ways in order to pay off high debt by resorting to collecting more taxes. An impending increase in tax rates would eat up a portion of personal income that can in turn affect their ability to consume. High tax rates can also discourage foreign direct investments (FDIs) into the country, as this factor can also contribute to decisions to investments since other countries might offer a more competitive tax package. Aside from this, with the perception that a country can be on the brink of debt overheating due to high national debt, foreign investors would hesitate to come in due to the idea that the economy is struggling, a bad precedent for doing business. High amounts of public debt can restrict the government's options for fiscal policy during recessions, which lessens the government's ability to help the economy recover and push forward. As debts increase, the growing perception that this would be contra beneficial to the living conditions of people despite the everyday grind could affect consumption behavior and future expectations on price and policy directions, further affecting the country’s overall economic health. While fiscal policies are strong indicators of government revenue raising and spending directions and actions, tax collection or revenues are necessarily integral as a key variable influencing a country’s capacity to pay that can also limit potentials of incurring a high national debt level. With good tax collection practices and tax policies, as a key source of revenues to help pay off the country’s debt, other factors such as monetary policy are also important. Monetary policy control is needed because rising interest rates can make it more expensive to borrow to cover basic household needs and other forms of financial needs, such as mortgages and other financial obligations. This could limit disposable income and reduce consumer spending. Moreover, related hazards that impact general consumption behavior include the depreciation of the currency and price rises that lead to inflation, which could exacerbate the living conditions of the people. These might lower families' purchasing power. Therefore, the effects of large public debt on investments and budgets emphasize the necessity of sound fiscal management and policy use to reduce any potential negative effects. The research examines the dynamics of macroeconomic aggregates in the context of the nation's high levels of national debt, tax revenue, household spending, and foreign investments. Among the objectives are trend analyses of significant variables such as GDP, tax revenues, foreign direct investment (FDI), household consumption, and national government debt. Another study objective is to comprehend the relationship between tax income, state debt, household expenditure, and foreign direct investments. Its goal is to determine whether the country's growing debt affects household consumption and investments. The study utilizes the Autoregressive Distributed Lag (ARDL) cointegration technique to examine the links between GDP, tax collections, foreign investments, household consumption, and national debt. In conclusion, the analysis' result regarding the influence of total national debt, overall economic health, and foreign investment on the household's final consumption expenditure (HCFE) is largely evident in both the short run and long run. The ARDL is a flexible model that allows analysis at level and first differences. Different lag lengths may also be used in the model having different variables.

The economic shock generated by the COVID-19 pandemic and prior procyclical fiscal policies has left Romania with a severely deteriorated budgetary balance in 2020 and a rapidly rising public debt. Policymakers are confronted with difficult choices amid the need to balance restoring fiscal sustainability with an adequate response to the economic shock generated by the pandemic. By resorting to public debt equations, this paper projects the public debt evolution in Romania during 2021–2030 in light of the announced fiscal consolidation plans for 2021–2024 and afterward by proposing a continuation in the reduction of the budgetary deficit, albeit at a slower pace. In order to account for possible variations in the determinants of public debt, a sensitivity analysis is performed, considering both optimistic and pessimistic scenarios. The paper concludes that fiscal consolidation under the current plan for 2021–2024 and going further until 2030 at the proposed pace is essential for keeping public debt near prudent levels. Moreover, under a pessimistic scenario, even with a successful fiscal consolidation, considered to be represented by an exit from the Excessive Deficit Procedure in 2025 and a reduction in the budgetary deficit to around 1% of GDP in 2030, public debt in Romania could be at the end of the interval considered in the vicinity of the 60% threshold set by the Maastricht Treaty.KeywordsPublic debt sustainabilityFiscal consolidationPublic debt equations

Subject Turkey's fiscal sustainability. Significance By keeping fiscal deficits low, the government has steadily reduced the public debt to about 33% of GDP. However, fiscal policy is now shoring up growth. There is also concern about the lack of further public financial reform, insufficient transparency and contingent liabilities. Impacts Wider budget deficits may not affect growth notably, given the weak global economy and low private investment and investor confidence. Turkey will have one of Europe's lowest public-debt levels, but investors may need to pay more attention to public finances. Fiscal policy could join more urgent worries about politics, the current-account deficit, private-sector debt and monetary policy.

Exploration and construction of fiscal and taxation policies to promote the development of marine circular economy

This study investigates the convergence relationship between fiscal policy and economic growth in Nigeria over 38 years. Fiscal policy was captured with public expenditure, revenue, and debt, while economic growth was captured with gross domestic product. The study adopted an expo factor design and a quantitative research approach. Balanced secondary data from 1986 to 2023 were gathered through the National Bureau of Statistics and the Federal Inland Revenue Service. The collected data were subjected to statistical analysis using trend analysis, descriptive statistical analysis, and OLS regression analysis. The findings reveal that public spending significantly and positively impacts Nigeria’s economic growth. Specifically, a 1% increase in government expenditure results in an 8.62% increase in GDP, with a coefficient of 8.62 and a probability value of 0.000 (p < 0.05). This underscores the autonomous capacity of government spending to drive economic growth. Conversely, tax revenue, while positively related to GDP, has a minimal and statistically insignificant effect on economic growth (coefficient = 2.99, probability = 0.4072, p > 0.05), indicating that a 1% rise in tax revenue corresponds to a 3% increase in GDP. Furthermore, the analysis reveals that public debt exerts a negative but statistically insignificant impact on GDP, with a coefficient of -0.617 and a probability value of 0.6565 (p > 0.05), implying that a 1% rise in public debt leads to a 0.6% decline in GDP. The study concludes that government spending plays a critical role in stimulating economic growth in Nigeria, while the current contributions of tax revenue and public debt remain limited. These findings provide valuable insights for policymakers, emphasizing the need for effective fiscal strategies that prioritize productive public spending to enhance long-term economic development in Nigeria.

This paper scrutinizes whether government borrowing in Eastern Europe is grounded on the need to provide infrastructure and public amenities as provided in the budget or is triggered by government deficit budgeting. European Union countries have experienced accelerated growth in public debt in the last half a century despite growing tax revenue and cuts in public spending. The purpose of this paper is to investigate the direct and indirect links among public debt, tax revenue and government expenditure in four Eastern European member states from 1998 to 2022 using secondary statistics collected from the World Bank and Eurostat. The paper utilizes a fully modified ordinary least squares (FMOLs) approach and Dumitrescu-Hurlin causation tests to examine the long-run relationship between the factors. For the robustness check, the Levin-Lin-Chu (LLC) unit root test was used to specify the stationarity of each series. In addition, Kao cointegration estimation was used as a robust long-run estimator. The results indicate that directly, a reduction in tax revenue and an increase in government spending increase public debt in the long run. Indirectly, simultaneous tax revenue increase and government spending increase will lead to budget deficit cuts, which will in turn reduce public borrowing. The finding confirms that the adverse impact of public spending on government debt holds only for countries with less tax revenue collection. The study recommends that government and policymakers develop strategies and policies for long-term debt management geared at reducing public debt to match the gap between tax revenue and government expenditure thereby cutting endless public borrowing and anticipated budget deficit.

We test the equivalence of income and consumption taxes through a choice experiment. Under a given set of income and consumption parameters, subjects were asked to choose among an income tax of 20%, a consumption tax of 25% (which is an equivalent tax burden), a consumption tax of 22%, and a consumption tax of 20%. Our results showed that subjects prefer income tax to consumption tax when the nominal consumption tax rate is higher than the nominal income tax rate. However, subjects tend to prefer consumption tax to income tax when the nominal tax rates are identical. Our result, that subjects prefer income tax to consumption tax despite a higher tax burden, implies the consumption tax miscalculation bias. The consumption tax miscalculation bias is one where subjects miscalculate the amount of consumption tax as if it is declared by tax inclusive, as in the case of income tax, despite consumption tax being tax exclusive. If the income tax burden is equivalent to the consumption tax burden, subjects prefer income tax. This result implies that income and consumption taxes are not equivalent due to the consumption tax miscalculation bias.

We test the equivalence of income and consumption taxes through a choice experiment. Under a given set of income and consumption parameters, subjects were asked to choose among an income tax of 20%, a consumption tax of 25% (which is an equivalent tax burden), a consumption tax of 22%, and a consumption tax of 20%. Our results showed that subjects prefer income tax to consumption tax when the nominal consumption tax rate is higher than the nominal income tax rate. However, subjects tend to prefer consumption tax to income tax when the nominal tax rates are identical. Our result, that subjects prefer income tax to consumption tax despite a higher tax burden, implies the consumption tax miscalculation bias. The consumption tax miscalculation bias is one where subjects miscalculate the amount of consumption tax as if it is declared by tax inclusive, as in the case of income tax, despite consumption tax being tax exclusive. If the income tax burden is equivalent to the consumption tax burden, subjects prefer income tax. This result implies that income and consumption taxes are not equivalent due to the consumption tax miscalculation bias.

s from short-run shocks, and which is capable of highlighting many important interactions between fiscal and monetary policies. We look at both the steady-state and the stability properties of the system. The analysis is especially relevant for cases where fiscal and monetary policies are decided with reference to different objectives, possibly by different authorities. It may be less useful for cases which one type of policy (e.g., fiscal policy) is given absolute priority (e.g., the fiscal authority behaves as a Stackelberg leader) and monetary authorities are forced to behave ways that ensure the maintenance of fiscal policy. The latter was what Sargent and Wallace had mind when they derived the path of the money stock and of inflation necessary to maintain fiscal policy settings [7]. The interesting literature that emerged along those lines was surveyed by Haliassos and Tobin [6]. The analysis introduces some new perspectives on policies aimed at attaining an acceptable inflation rate over the longer run. When a monetary authority maintains a target rate of inflation over the longer run, it also fixes the long-run real rate of return on money which is directly linked to inflation when money bears a zero (or an institutionally fixed) nominal interest rate. As a result, the size of the long-run inflation target generally affects the equilibrium composition of the total government debt, i.e., the ratio of money to government bonds. A sustainable monetary policy is one which not only fixes the rate of growth of nominal money to equal the target inflation rate plus the rate of growth of real GNP, but which additionally ensures that the equilibrium composition of government debt will be attained over the longer run. Otherwise, the system does not get onto its steady state, and the package of fiscal and monetary policies is not sustainable over the longer run. From this point of view, simple monetary policy rules targeting inflation, such as Friedman's x % rule, are not general sustainable, because they only fix the slope of the money path, without ensuring that the composition of government debt gets to the appropriate steady-state level. This point has implications for the interaction between fiscal and monetary policies. The steady-state equilibrium composition of government debt is not influenced only by the size of the inflation target, but also by fiscal policy settings. A change fiscal policy alters the equilibrium composition of government debt that the monetary authority has to bring about through its open market operations if it does not want to abandon its inflation target. Changes fiscal policy for a given inflation target also have effects on the long-run capitaloutput ratio, unless the conditions for debt neutrality are met. With regard to government spending on goods and services, G, the question is whether crowding out of private capital is unavoidable. The possibility that capital may be crowded in by higher ratios G/Y has been noted by Tobin and Buiter and by Friedman, but not under inflation targeting [9; 3; 4]. In fact, the present paper shows that crowding may still be observed situations where the mechanisms identified by the previous authors cannot operate. In particular, the mechanism whereby an increase government expenditure leads to crowding existing models is by raising the steady-state rate of inflation, thus lowering the real rate of return on money. This produces effects on the demand for money and for government bonds that create room portfolios for the extra holdings of capital. However, when inflation is set at a target level, this channel is not open. What can still happen is higher short-run inflation the transition to the steady state, so that the level of the steady-state price path ends up being higher while its slope is still equal to the long-run inflation target. This possibility is demonstrated here. The above effects on the capital-output ratio presuppose that complete debt neutrality does 1011 This content downloaded from 157.55.39.209 on Sat, 14 May 2016 06:30:33 UTC All use subject to http://about.jstor.org/terms 1012 Michael Haliassos not hold. If it does, then cuts current taxes would have no effect on the capital-output ratio. The work of Barro [2] inspired a voluminous theoretical literature on debt neutrality (or Equivalence). Haliassos and Tobin [6] present a comprehensive account of the literature exploring the restrictive conditions under which the neutrality theorem holds. The present analysis of sustainability adds a new dimension to the debate. Suppose that agents believe debt neutrality and save the current tax cut, so as to raise their bequests to descendants and to eliminate any effects on their utility arising from future tax increases. Then, the question is whether taxes will indeed have to go up the future, i.e., whether current fiscal policy is sustainable or not. If it is, Ricardian behavior on the part of agents is not rational, since the expectation that taxes will have to rise the future leads to behavior which violates it. It turns out that Ricardian equilibria are not necessarily rational, while one can also construct non-Ricardian equilibria which are rational. Section II presents an illustrative model for analyzing sustainable fiscal and monetary policies. Section III investigates the requirements for a sustainable monetary policy targeting inflation. Section IV discusses the interactions of fiscal and monetary policies and the implications of inflation targeting for crowding out or crowding of private capital. Section V investigates the rationality of Ricardian behavior. Section VI offers concluding remarks. The Appendix contains a formal derivation of comparative statics and stability results. II. An Illustrative Model The economy to be considered is one which fiscal policy rules are decided with reference to different objectives from those of monetary policy, which is aimed at maintaining a target inflation rate over the longer run. According to the notion of sustainability introduced here, if the combination of fiscal and monetary policies is unsustainable, the economy cannot attain a steady state by following those policies. This is either because a steady state does not exist or because it is not stable. If the government persists following those policies, then the economy is likely to get onto an unstable trajectory. It is difficult to describe precisely what will be observed if this is allowed to happen. A plausible doomsday scenario might be that we would experience a stock market crash, for example. However, it seems more likely that policy authorities will not allow the economy to reach such a point. After realizing that their policies are unsustainable, they are likely to reverse them, e.g., by abandoning their inflation target or by reducing the deficit-to-GNP ratio. Here, we highlight some general principles for detecting unsustainable policy mixes. The points can be made by employing a relatively general macroeconomic structure which explicitly allows for asset accumulation. Consider a closed economy with three assets: high-powered money, H, government bonds of total nominal value B, and claims to homogeneous physical capital K, one for each unit of capital. All asset stocks are measured per efficiency unit of labor. The fiscal policy instruments are (i) the ratio of real government expenditure on goods and services, G/Y, and (ii) the average tax rate, t, which is the ratio of total taxes net of transfers (T) to GNP. The primary budget deficit to GNP ratio is then G/Y t. Fiscal authorities issue bonds to finance the total budget deficit, while the monetary authorities determine the degree of monetization and the overall composition of accumulated government debt, H + B, through their open market exchanges of money for bonds.' 1. This is different from saying that the monetary authorities can exogenously fix the fraction of the deficit which is monetized. It will be seen below that this fraction is dictated by inflation targeting steady state. This content downloaded from 157.55.39.209 on Sat, 14 May 2016 06:30:33 UTC All use subject to http://about.jstor.org/terms SUSTAINABILITY, INFLATION TARGETING, AND CROWDING OUT

Does fiscal stance affect inflation expectations? Evidence for European economies

The Euro Crisis: Mission Accomplished?

This paper explores the empirical relationship between the current account balance and macroeconomic series for the Japanese economy over the years 1885–1991. The long-run equilibrium depends on which series (public debt or budget deficits) affects assets relative to a capital stock rate. Departing from the Ricardian Equivalence structure (no bequest motives), fiscal policy in Japan is shown to be more related to the current account when policy is introduced by shifts in tax revenues rather than by changes in national debt.