Analysis of Fiscal Policy and Financial Sustainability in Improving the Country's Economic Stability

Active and passive fiscal policies Fiscal policy has changed radically since the 1960s and 1970s when it tried to micro-manage, if not fine-tune, all aggregate demand and assumed an accommodating monetary policy; and it changed from the 1980s when it was passive, but was used to strengthen the economy's supply-side responses while monetary policies actively pursued low inflation and stable growth. The 1990s saw a return to more activist fiscal policies. But this time the policies were designed together with equally active monetary policies to gain a series of medium- to long-term objectives – low public debt, the provision of a certain level of public services and investment, and social equality and economic efficiency. The income-stabilizing aspects of fiscal policy were left largely passive, to act through the automatic stabilizers which are the endogenous part of any fiscal system. Monetary policy, meanwhile, was designed to take care of short-run stabilization around the cycle; that is, beyond what, predictably, would or could be achieved by automatic stabilizers. The recent financial crisis has again introduced the need for active fiscal policy to complement monetary policy, but in a sense opposite to that traditionally advocated – that is, in the form of austerity policies to remove excess fiscal deficits and reduce public debt. This was based on an undervaluation of the size of the spending multipliers, which have been shown to be quite large in a situation of generalized low demand and low interest rates (and crucially greater than one, so that each deficit reduction leads to a larger loss in national output and hence rising deficit and debt ratios ). The kind of coordination to be sought between fiscal and monetary policy is one of the issues we discuss in this chapter. We suggest that an improved performance can be obtained if fiscal policy “leads” an independent monetary policy. The form of leadership implied here derives from the fact that fiscal policy typically has long-run targets (sustainability, low debt) and is not easily reversible. In fact, it aims to ensure sustainable public services, social equity, and other long-term goals, which often makes it an ineffective stabilizer. Nevertheless, there are also automatic stabilizers in any fiscal policy framework, implying that monetary policy must condition itself on the fiscal stance at each point. This automatically puts the latter into a follower's role.

This study investigated the impact of digital accounting and corporate governance on the financial sustainability of firms in Nigeria. The research used secondary data from the financial statements of 50 listed firms across multiple sectors between 2014 and 2023 and employs a quantitative approach, incorporating descriptive statistics, correlation analysis, and panel regression models. The findings revealed that digital accounting, particularly cloud-based systems, significantly enhances financial transparency and sustainability. Effective corporate governance, especially executive compensation structures aligned with sustainability objectives, strengthens accountability and long-term financial stability. However, the adoption of artificial intelligence (AI) in accounting shows limited direct influence, indicating challenges related to infrastructure, skill gaps, and implementation. The study highlighted the need for firms to integrate digital accounting solutions, reinforce governance frameworks, and link executive incentives with sustainability targets to achieve financial stability. Policymakers should facilitate digital transformation through regulatory incentives and investment in digital infrastructure. Additionally, standardized sustainability reporting frameworks are recommended to enhance transparency and investor confidence. This research contributed to the literature by providing empirical evidence on the role of digital accounting and governance in financial sustainability within the Nigerian context. The research explored the necessity of integrating emerging financial technologies with governance reforms to promote long-term economic growth. The study concluded that fostering a robust digital accounting environment and strengthening governance practices are critical for enhancing corporate sustainability and financial resilience in Nigeria.

Recent events have highlighted the potential importance of nonlinear efiects of flscal variables (notably debt and deflcits) on interest rates: While in times when government solvency is not a concern the standard crowding-out efiects are of moderate magnitude, in times when default risk becomes an issue the interest rate efiects can become very large. This paper provides new evidence on the magnitude of these efiects. For the case when default risk is not a concern, it uses an arbitrage-free term structure model to estimate the dynamic efiects of flscal policy shocks on interest rates along the entire maturity spectrum. For the case when default risk becomes a concern (thereby violating a central assumption of the term structure model), I present evidence based on EMU government bond spread regressions on time-varying efiects of national flscal policies on spreads as well as the time-varying sensitivity of yield spreads to international risk aversion as a function of the state of flscal policy. JEL classiflcation: E6, H6.

The global financial and economic crisis has revived the debate in the academic literature and in policy circles about the size and effectiveness of automatic fiscal stabilisers. Especially in the euro area where monetary policy is centralised and discretionary fiscal policy making is constrained by the EU fiscal rules, knowing the size and the effectiveness of automatic stabilisers is crucial. While automatic stabilisers are a fairly established concept in the fiscal policy literature, there is still no consensus about their actual nature and their effectiveness. This paper shows that differences in opinion mirror a deeper disagreement over how the budget would look like without automatic stabilisers. This issue is addressed by defining two types of counterfactual budgets giving rise to two different interpretations about the nature of automatic stabilisation. Simulations with a structural model confirm that the degree of smoothing is conditional on how the counterfactual budget, i.e. the budget without automatic stabilisers, is defined.

Previous articleNext article No AccessThe Static Theory of Automatic Fiscal StabilizationE. Cary BrownE. Cary Brown Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Journal of Political Economy Volume 63, Number 5Oct., 1955 Article DOIhttps://doi.org/10.1086/257709 Views: 6Total views on this site Citations: 14Citations are reported from Crossref Copyright 1955 The University of ChicagoPDF download Crossref reports the following articles citing this article:Tomasz Piotr Wisniewski, Peter M. Jackson Government debt expansion and stock returns, International Journal of Finance & Economics 8 (Aug 2020).https://doi.org/10.1002/ijfe.2052Jeff Chan Labour market characteristics and surviving import shocks, The World Economy 42, no.55 (Feb 2019): 1288–1315.https://doi.org/10.1111/twec.12781Joseph A. Pechman Built-In Stabilizers, (Feb 2018): 1145–1147.https://doi.org/10.1057/978-1-349-95189-5_482Tomasz Piotr Wisniewski, Peter M. Jackson Government Debt Expansion and Stock Returns, SSRN Electronic Journal (Jan 2018).https://doi.org/10.2139/ssrn.3237393Hautahi Kingi, Kyle Rozema The Effect of Tax Expenditures on Automatic Stabilizers: Methods and Evidence, Journal of Empirical Legal Studies 14, no.33 (Aug 2017): 548–568.https://doi.org/10.1111/jels.12155Philipp Engler, Wolfgang Strehl The Macroeconomic Effects of Progressive Taxes and Welfare, SSRN Electronic Journal (Jan 2016).https://doi.org/10.2139/ssrn.2881186Marco Di Maggio, Amir Kermani The Importance of Unemployment Insurance as an Automatic Stabilizer, SSRN Electronic Journal (Jan 2015).https://doi.org/10.2139/ssrn.2575434P. Foresti, U. Marani Expansionary Fiscal Consolidations: Theoretical Underpinnings and their Implications for the Eurozone, Contributions to Political Economy 33, no.11 (Jun 2014): 19–33.https://doi.org/10.1093/cpe/bzu007Joseph A. Pechman Built-In Stabilizers, (Oct 2016): 1–2.https://doi.org/10.1057/978-1-349-95121-5_482-1Lawrence J. Christiano A reexamination of the theory of automatic stabilizers, Carnegie-Rochester Conference Series on Public Policy 20 (Mar 1984): 147–206.https://doi.org/10.1016/0167-2231(84)90044-7DARWIN G. JOHNSON THE INFLATION ELASTICITY OF A SPECIFIC EXCISE TAX, National Tax Journal 33, no.11 (Mar 2021): 107–110.https://doi.org/10.1086/NTJ41862290Øystein Pettersen Built-in Stabilisation in Deterministic and Stochastic Models, The Manchester School 42, no.44 (Dec 1974): 370–387.https://doi.org/10.1111/j.1467-9957.1974.tb00125.xMARVIN SNOWBARGER and JOHN KIRK A CROSS-SECTIONAL MODEL OF BUILT-IN FLEXIBILITY, 1954-1969, National Tax Journal 26, no.22 (Mar 2021): 241–249.https://doi.org/10.1086/NTJ41791876HENRY J. CASSIDY IS A PROGRESSIVE TAX STABILIZING?, National Tax Journal 23, no.22 (Mar 2021): 194–205.https://doi.org/10.1086/NTJ41791714

Automatic Fiscal Stabilisers: What They are and What They Do

This paper empirically investigated the relationships among money supply, government revenue, government expenditure, domestic debt, external debt, inflation rate, exchange rate and balance of trade in Nigeria based on time series data which spanned between 1981 and 2017. The data were sourced from Central Bank of Nigeria Statistical Bulletin publications of various issues and National Bureau of Statistics. The data were tested for stationarity using Augumented Dickey Fuller unit root test and Phillips-Perron unit root test while the co-integration test was conducted using Johansen’s methodology. Ordinary Least Square (OLS) estimating technique was used for the empirical analysis. The findings revealed that both the explanatory variables and the dependent variable have long run equilibrium relationship. The results further demonstrated that government revenue (GREV), government expenditure (GEXP), exchange rate (EXGR) and inflation rate (INFR) have statistically significant positive relationships with balance of trade (BOT) while money supply (MS), domestic debt (DDEBT) and external debt (EDEBT) exert statistically significant negative impact on balance of trade (BOT) in Nigeria. Based on the results, government at all levels should ensure implementation of monetary and fiscal policies’ instruments aimed at promoting favorable investment atmosphere through appropriate stabilization of interest rates, exchange rates and inflation rates in order to galvanize economic growth, economic stability, economic sustainability and favorable balance of trade; there should be promotion of exportation of Nigerian products by the government especially non-oil products in order to bring more foreign exchange earning into the country, boost productive activities and improve the balance of trade position of the country. In addition, government should ensure that loans borrowed from domestic and external sources are judiciously expended on productive activities in order to positively influence balance of trade; and there should be imposition of ban on importation of products that can be manufactured domestically so as to expand productive capacity of indigenous industries and ensure favorable balance of trade. Finally, different tiers of government should invest massively on critical infrastructure in the economy to boost local investment in productive activities, thus galvanizing balance of trade. Keywords: Monetary Policy, Fiscal Policy, Balance of Trade, Unit Root Test, Co-integration Test, Ordinary Least Squares, Nigeria DOI : 10.7176/JPID/50-07 Publication date :June 30 th 2019

The macroeconomic literature on automatic stabilization tends to focus on taxes and dismiss the relevance of government expenditure except for unemployment compensation. Our results go sharply contrary to this view. We engage in an empirical analysis of 21 OECD countries from 1982 to 2003 and find that age- and health-related social expenditure as well as incapacity and sick benefits all react to the cycle in a stabilizing manner. While possibly new in the macro literature, this conforms to many results in studies in labour economics. The policy implications are broad since much previous analysis of discretionary fiscal policy rests on official figures for automatic stabilization. There are also major implications for efforts to incorporate automatic fiscal policy in simulation models. — Julia Darby and Jacques Melitz

The purpose of this study is to explore the relationship between investment behaviors and financial sector sustainability within the framework of the blue economy. It seeks to assess how different investment behaviors influence financial sector sustainability and contribute to economic resilience in India's coastal areas, particularly focusing on sustainable development. Design/Methodology/Approach This research adopts a mixed-methods approach, combining quantitative and qualitative data. Quantitative data will be collected via surveys and financial performance analyses of blue economy organizations, while qualitative data will be obtained through interviews with key stakeholders, such as investors, policymakers, and industry experts. This dual approach aims to provide a holistic understanding of sustainable investment behaviors. Findings The findings are anticipated to shed light on the factors influencing sustainable investment decisions within the blue economy. It is expected that the results will offer insights into effective investment strategies that balance economic growth with environmental sustainability, thus enhancing financial sector sustainability and contributing to overall economic resilience in coastal areas. Originality/Value This study contributes original insights into the intersection of investment behaviors, the blue economy, and financial sustainability, an area that has seen limited empirical research. By focusing on the context of India's coastal regions, the study offers a unique perspective on the role of sustainable investments in driving both economic growth and environmental conservation. Research Limitations/Implications The study may face limitations related to the availability of reliable data on blue economy organizations and the subjective nature of qualitative interviews. Nevertheless, it provides a valuable framework for future research on sustainable investment behaviors and their broader economic implications, particularly in emerging markets like India. Practical Implications The findings will offer practical recommendations for investors and policymakers to align investment practices with sustainability goals. The study aims to promote investment strategies that support economic resilience, environmental stewardship, and the sustainable development of financial sectors engaged in the blue economy. Social Implications By promoting sustainable investment practices, the study contributes to enhancing livelihoods and protecting marine ecosystems in coastal regions. It highlights the importance of balancing economic development with environmental conservation, ensuring that future generations can benefit from a sustainable blue economy. Keywords: Blue Economy, Investment Behaviours, Financial Sector Sustainability, Sustainable Investment, Economic Growth

This paper provides a perspective on how the IMF assesses a sound fiscal policy, focusing principally on industrial and emerging market economies. It observes six central criteria: the short-term fiscal policy stance, with greater emphasis on automatic stabilizers than discretionary fiscal policy; relevance of medium and sometimes long-term issues; fiscal sustainability; capacity for aggregate fiscal policy implementation (including political economy factors); structural content of fiscal policy (tax efficiency and public expenditure quality); and institutional, governance, and process issues associated with budget implementation and revenue collection. Greater emphasis could be placed on an adequate margin to deal with uncertain long-term challenges.

This paper provides a perspective on how the IMF assesses a sound fiscal policy, focusing principally on industrial and emerging market economies. It observes six central criteria: the short-term fiscal policy stance, with greater emphasis on automatic stabilizers than discretionary fiscal policy; relevance of medium and sometimes long-term issues; fiscal sustainability; capacity for aggregate fiscal policy implementation (including political economy factors); structural content of fiscal policy (tax efficiency and public expenditure quality); and institutional, governance, and process issues associated with budget implementation and revenue collection. Greater emphasis could be placed on an adequate margin to deal with uncertain long-term challenges.

Purpose This paper aims to estimate a New Keynesian small open economy dynamic stochastic general equilibrium (DSGE) model for Egypt using Bayesian techniques and data for the period FY2004/2005:Q1-FY2015/2016:Q4 to assess monetary and fiscal policy interactions and their impact on economic stabilization. Outcomes of monetary and fiscal authority commitment to policy instruments, interest rate, government spending and taxes, are evaluated using Taylor-type and optimal simple rules. Design/methodology/approach The study extends the stylized micro-founded small open economy New Keynesian DSGE model, proposed by Lubik and Schorfheide (2007), by explicitly introducing fiscal policy behavior into the model (Fragetta and Kirsanova, 2010 and Çebi, 2011). The model is calibrated using quarterly data for Egypt on key macroeconomic variables during FY2004/2005:Q1-FY2015/2016:Q4; and Bayesian methods are used in estimation. Findings The results show that monetary and fiscal policy instruments in Egypt contribute to economic stability through their effects on inflation, output and debt stock. The monetary policy Taylor rule estimates reveal that the Central Bank of Egypt (CBE) attaches significant importance to anti-inflationary policy and (to a lesser extent) to output targeting but responds weakly to nominal exchange rate variations. CBE decisions are significantly influenced by interest rate smoothing. Egyptian fiscal policy has an important role in output and government debt stabilization. Additionally, the fiscal authority chooses pro-cyclical government spending and counter-cyclical tax policies for output stabilization. Again, past values of the fiscal instruments are influential in the evolution of the future fiscal policy-making process. Originality/value A few studies have examined the interaction between monetary and fiscal policy in Egypt within a unified framework. The presented paper integrates the monetary and fiscal policy analysis within a unified dynamic general equilibrium open economy rational expectations framework. Without such a framework, it would not be easy to jointly analyze monetary and fiscal transmission mechanisms for output, inflation and debt. Also, it would be neither possible to contrast the outcome of monetary and fiscal authorities commitment to a simple Taylor instrument rule vis-à-vis optimal policy outcomes nor to assess the behavior of monetary and fiscal agents in macroeconomic stability in context of an active/passive policy decisions framework.

(A Study on Japanese Fiscal Sustainability and Fiscal Discipline)

Nigeria’s pursuit of economic growth and Sustainable Development Goals (SDGs) faces persistent challenges, including inadequate financing mechanisms and underdeveloped real estate infrastructure. Despite efforts to promote sustainable urban development, the integration of green financing into the real estate sector remains limited. This gap hinders progress towards key SDGs, such as sustainable cities (SDG 11) and economic resilience. Addressing this issue is critical, as sustainable real estate financing can serve as a catalyst for economic development while advancing environmental and social goals. This study aims to evaluate the role of sustainable real estate financing in mediating the relationship between economic growth and SDG achievements in Nigeria from 2000 to 2024. By employing advanced panel data techniques, the research provides empirical evidence on how green bonds, mortgage rates, and real estate investments influence economic indicators and SDG progress. Secondary data were sourced from the National Bureau of Statistics (NBS), the United Nations, and global financial databases. The analysis utilized Python, with Pandas for data preparation, Statsmodels for Ordinary Least Squares (OLS) regression, and Matplotlib for visualization. Mediation analysis assessed the indirect effect of economic growth on SDG outcomes through real estate financing, with the Sobel test confirming mediation significance. Results revealed a significant direct effect of economic development on SDGs (β = 0.74, p < 0.001) and a notable indirect effect mediated by sustainable real estate financing (β = 0.21, p = 0.002). Green mortgage disbursements (β = 0.63, p < 0.001) and green building certifications (β = 0.58, p = 0.004) emerged as key drivers of urban sustainability. The model explained 87% of the variance in SDG achievements (R² = 0.87). The study concludes that expanding sustainable real estate financing can significantly amplify Nigeria’s progress towards SDGs. Policy recommendations include increasing green mortgage incentives and embedding sustainable financing into national development strategies to foster long-term economic growth and environmental sustainability.

This paper examines the stabilizing effects of Swiss fiscal policy. First, we find that the federation adopted a countercyclical fiscal policy in approximately 60% of all periods observed. During recessions, fiscal policy was always countercyclical and therefore helped to stabilize the economy. In case of the cantons, fiscal policy was countercyclical in 55% of all recessions. In recent years, there has been a trend for both the federation and the cantons toward stronger stabilization. Second, the two stabilizing instruments of fiscal policy, automatic stabilizers and discretionary fiscal policy are compared with each other. Over the last 50 years, automatic stabilizers have been expanded continuously, particularly on the federal level. We find that the impulse of automatic stabilizers is about twice as large as the one of discretionary fiscal policy. Third, macroeconomic effects of Switzerland’s fiscal policy during recessions are examined. Automatic stabilizers have been particularly effective in the cantons whereas the effects of discretionary fiscal policy on economic growth have tended to be weaker.