Fiscal Stabilization & Adjustments in Developing Countries

This paper provides an empirical assessment of the impact of fiscal variables (tax revenue, public expenditure, and public debt) on exchange rate volatility. To this end, a panel of 53 countries for the period from 2004 to 2023 was utilized, employing the GMM-System estimation method to control for endogeneity. The results indicate that fiscal austerity measures, through either increases in tax revenue or reductions in public spending, lead to a reduction in exchange rate volatility. However, these results should not be interpreted as recommendations for policymakers to reduce the volatility of domestic currency. Instead, they serve as evidence of agents’ risk perception based on a shared belief at a given time.

Trends in Income Distribution and the Influence of Fiscal Policy

We employ a regional computable general equilibrium model to measure the impact on CO2 emissions of a balanced-budget increase in public environmental expenditure. We identify conditions under which an economic stimulus accompanied by a reduction in emissions could occur. Our results suggest that this is conceivable if the population values the environmental amenity funded by the increase in public expenditure, and if this is reflected in wage-bargaining behaviour. Given increasing concerns over climate change, public spending on environmental improvement could attract support together with the establishment of an ‘environmental social wage’, where workers accept lower pay in return for that improvement.

The increasing proportions of older people in populations are a reflection of global trends of increased longevity and decreased fertility rates. In the multifaceted consequences of this population change, the...

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

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

This paper investigated the role of government in promoting real sector development in sub-Saharan Africa with a focus on the Nigerian economy. The government’s role was measured using fiscal and monetary policy variables such as total government expenditure, broad money supply and interest rate, while the ratio of manufacturing value added to GDP formed the basis for measuring real sector development. Time series data on the variables were sourced from the Central Bank of Nigeria Statistical Bulletin and analysed using econometrics tools of error correction mechanism (ECM) and Granger causality test. The unit root test results revealed that all the variables are first difference stationary. It was also found from the cointegration test that variables have a long-run relationship. It was found from the parsimonious ECM that broad money supply and rate of interest are statistically insignificant in influencing manufacturing output. The results further reveal that the second and third leg of the government expenditure ratio to GDP significantly impacts manufacturing output. 1 percent increase in the first leg of government expenditure increases manufacturing output by 5.962 percent. Similarly, with a percentage in the second lag of government expenditure, manufacturing output increases by 3.182 percent. Additionally, the pairwise Granger causality test results reveal that unidirectional causality flows from the ratio of government expenditure to manufacturing output. Overall, the results indicate that fiscal policy, especially government expenditure, can be relied upon in predicting changes in manufacturing output. Thus, it is recommended for proper monitoring of fiscal policy measures, especially public expenditures, to ensure they are accounted for holistically and effectively utilised in fostering real sector development.

Introduction. Global economic shocks, pandemics, military conflicts, and geopolitical crises negatively impact small businesses’ activities, making them more vulnerable to external factors. During crisis periods, small enterprises face numerous challenges, including reduced demand, restricted access to financing, rising resource prices, and deteriorating solvency. In such conditions, governments implement fiscal measures to support small businesses and minimize the crisis’s negative consequences. However, implementing most fiscal measures comes with numerous challenges for governments. Objective. The purpose of the article is to analyze fiscal measures to support small businesses during economic crises in the world in the context of overcoming challenges for the fiscal policies in crisis conditions and to outline the approaches and tools of the state support that can be effective in stimulating the development of small business in conditions of global economic shocks. Results. The study explores current trends in implementing fiscal measures by governments to support small businesses during economic crises. It characterizes the main fiscal support measures for small businesses in crisis conditions and highlights common challenges to fiscal policy in helping small companies during economic crises. Based on the analysis, directions for fiscal policy to support small businesses in overcoming crises, adapting to modern challenges, preserving jobs, and ensuring long-term development are substantiated. Conclusions. In the face of prolonged crisis conditions, fiscal policy supporting small businesses confronts a series of challenges (economic crises, military actions, climate change, etc.) that demand long-term solutions. These solutions should be based on the potential capabilities of small businesses and the development of alternative mechanisms for revenue mobilization, spending efficiency, debt management, and international cooperation. By focusing fiscal support measures for small businesses on stimulating digitalisation, environmental sustainability, innovative financing, and social entrepreneurship, small enterprises can adapt to modern challenges and ensure their competitiveness in a sustainable development environment.

This study examined the Effect of selected macroeconomic variables on External Reserves Management in Nigeria (1981-2022) with external reserves as a dependent variable and international crude oil price movement, exchange rate volatility, inflation, monetary policy rate, public expenditure, economic growth, external debt service payment, and trade Openness as independent variables. With dataset from the Central bank of Nigeria Statistical Bulletin and Autoregressive Distributive Lag (ARDL) model as the key estimation technique, the study found that crude price movement, economic growth, public expenditure growth, all had positive and significant impact on external reserves management. Exchange rate volatility, monetary policy rate and trade openness were found to have adverse and significant effects on external reserves. It is therefore recommended that effective and efficient fiscal and monetary policy measures be adopted to enhance the management of external reserves.

Public welfare and macroeconomic stability should be the main objectives of fiscal and monetary policy cooperation. Monetary and fiscal policy should be coordinated better to maintain sustainable economic development. To implement fiscal measures and monetary controls, a balanced budget is necessary. This study uses data from 1976 to 2022. A macroeconomic stability check uses real GDP, current account balance, exports, real effective exchange rate, broad money (M2), foreign exchange reserves, consumer price index (CPI), nominal exchange rate, government expenditures, and government tax revenue. The VAR models we use are Impulse Response Functions (IRFs) and Variance Decompositions (VDs). CMR feels a negative impact, TRY, whereas M2G, GY, and others feel a positive impact. Achieving output and price stability requires higher call money rates, more tax revenues, and reduced government spending. Output gaps should be negative.M2G and CABY are negatively correlated, whereas CABY and CMR are positively correlated. If there is a negative output gap, monetary aggregates and taxes conflict with price and production stability; however, policy should aim to increase the current account balance. We recommend strict fiscal and monetary policy measures to stabilize output and limit inflation whenever there is a positive output gap. In addition to strengthening trade and foreign exchange reserves, reduced government spending will stabilize exchange rates; however, increasing tax revenue will counteract these benefits by strengthening the current account.

Mimosa, a macroeconomic model of the world economy, jointly built by the CEPII and the OFCE, is now reestimated. This article presents its main features and describes some monetary and fiscal multipliers. The economies of the six bigger industrialised countries are described in great detail by neo-keynesian models : a five product disaggregation distinguishes the energy sector, agriculture, the non-traded sector, the government sector and the industrial sector for which a putty-clay production function ensures compatibilities between employment, investment and production capacity behaviour. These models allow a precise analysis of the consequences of many kinds of monetary or fiscal policies. The rest of the world is divided into twelve zones, more succinctly modelled : the model reveals in particular the financing constraints which bear on the imports of the less developed countries. International trade is analysed through a four product disaggregation. The article shows the model's properties while describing the impacts, in the country and abroad, of an increase in public expenditure in one of the major countries. It studies the consequences of worlwide increase in public expenditures, the implications of a worldwide increase in interest rates, and finally the effects of a decline in the dollar exchange rate.

BackgroundIndia is unlikely to meet the Millennium Development Goal for child mortality. As public policy impacts child mortality, we assessed the association of social sector expenditure with child mortality in India.Methods and FindingsMixed-effects regression models were used to assess the relationship of state-level overall social sector expenditure and its major components (health, health-related, education, and other) with mortality by sex among infants and children aged 1–4 years from 1997 to 2009, adjusting for potential confounders. Counterfactual models were constructed to estimate deaths averted due to overall social sector increases since 1997. Increases in per capita overall social sector expenditure were slightly higher in less developed than in more developed states from 1997 to 2009 (2.4-fold versus 2-fold), but the level of expenditure remained 36% lower in the former in 2009. Increase in public expenditure on health was not significantly associated with mortality reduction in infants or at ages 1–4 years, but a 10% increase in health-related public expenditure was associated with a 3.6% mortality reduction (95% confidence interval 0.2–6.9%) in 1–4 years old boys. A 10% increase in overall social sector expenditure was associated with a mortality reduction in both boys (6.8%, 3.5–10.0%) and girls (4.1%, 0.8–7.5%) aged 1–4 years. We estimated 119,807 (95% uncertainty interval 53,409 – 214,662) averted deaths in boys aged 1–4 years and 94,037 (14,725 – 206,684) in girls in India in 2009 that could be attributed to increases in overall social sector expenditure since 1997.ConclusionsFurther reduction in child mortality in India would be facilitated if policymakers give high priority to the social sector as a whole for resource allocation in the country’s 5-year plan for 2012–2017, as public expenditure on health alone has not had major impact on reducing child mortality.

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.

Nederlandse Collectieve Uitgaven in Historisch Perspectief (Dutch Public Expenditure in Historical Perspective)

Although the COVID-19 pandemic crisis is basically a health crisis, it does not only concern health policies due to its economic and social effects. In the fight against the pandemic, it is important to implement economic, social and financial policies as well as health policies. In this context, effectively using the public spending tools of fiscal policy in the fight against the COVID-19 pandemic has become a priority rather than a political choice for governments. In times of pandemics, sufficient increase in public expenditures is an effective political tool for governments in order to prevent the decline of the economic growth process, loss of welfare, large-scale unemployment and supply problems. Considering the Peacock-Wiseman Hypothesis in the public finance literature, if public expenditures are used as an effective policy tool in the COVID-19 pandemic crisis, a leap in public expenditures is likely. This study evaluates the relationship between the COVID-19 pandemic crisis and public expenditures and reveals the public expenditure policies of selected countries in the fight against COVID-19. It can be said that there is a positive relationship between the level of development of countries and the increase in public expenditures in the COVID-19 pandemic crisis. It is seen that developing economies mostly resort to credit instruments, while developing countries mainly use public expenditure instruments, they also use credits and supports sufficiently. However, due to the continuation of the COVID-19 pandemic crisis, obtaining definitive results will emerge in post-pandemic studies. For this reason, the final results of this study will become clear with the studies carried out after the pandemic crisis.KeywordsCOVID-19PandemicPublic expendituresPeacock-Wiseman hypothesisPublic policiesEconomic crisis