Mitigation or adaptation to climate change? The role of fiscal policy

the recent real-world events have brought back to the attention of private citizens the role of discretionary fiscal policy for the purpose of stabilizing the economy. Policymakers in the united Kingdom, united States, China, France, Germany, and Spain, just to mention a few, have all proposed a fiscal stimulus in order to prevent the 2007–8 financial crisis and real economic slowdown from leading their economies into a 1930s-style depression. Academics have been forced to catch up with real-world events, but not without problems. the past two decades have seen a spectacular convergence in macroeconomics between new classical economics and new Keynesian economics. the “three-equation new consensus macroeconomic model” is the outcome of this convergence. the main policy implication of the model is that all that matters for stabilization purposes is monetary policy, which now takes the form of interest rate management with the aim of hitting a particular inflation target. the three -equation new consensus macroeconomic model has no role for fiscal policy, except for limiting any interference with the use of monetary policy and balancing the budget of the government. Post Keynesians have always been on the front line in defending a stabilization role for fiscal policy. however, with few exceptions, the reader will look in vain for recent Post Keynesian papers on the role of fiscal policy in modern macroeconomics. It is really astonishing that the journals that typically publish contributions within the Post Keynesian tradition have few or no papers dealing with the stabilization role of discretionary fiscal policy. the purpose of this symposium is to amend this

Fiscal policy is one of the most important segments of economic policy and its relevance is reflected through the process of taxation and public revenue collection with the aim of creating funds for financing public expenditures. That is why it entails the use of fiscal revenues and budget expenditures which have to be consistent with the goals and tasks of macroeconomic policy. The aim of this paper is to posit the importance of fiscal policy and their indicators on the macroeconomic flow of the economy. The paper consists of three chapters where the first emphasizes the role and function of fiscal policy in the economy, the second and the third part are empirical evidence supported by appropriate tabular and graphical views. In addition to the primary fiscal indicators, emphasis is placed on public revenues and expenditures, their structure and tendency, as well as the share of GDP of Serbia.

The research aims to measure the impact of positive and negative fiscal policy shocks on monetary stability in Iraq, which represents monetary stability as an indicator of real and price stability. Fiscal policy shocks are quantitative changes in public spending and public revenue affecting the output and price cycle, and fiscal policy despite the accompanying time gaps, but it remains a policy Influential and has a significant degree of impact on economic growth and development in developing countries. The fiscal policy represents a numerical translation of the economic and social objectives planned in the state's general budget tool consistent with the GDP cycle. The economic and social goals stem from the core of the functions and the main objectives of the fiscal policy, namely the allocation of resources, stability and restoration Distribution and these functions, as we know, free market techniques may fail to achieve them, which interferes with the financial policy to address the failure of the market to reach the set goals, and that coordination between fiscal and monetary policies does not mean a loss of independence as much as it means correcting fiscal and monetary policies without causing undesirable adverse effects upon the necessary correction. For local courses Opposing this coordination, and we have touched on the monetary stability index adopted by the International Monetary Fund (IMF) to discuss the impact of financial shocks on the monetary stability index in Iraq, where the Iraqi economy witnessed positive fiscal and revenue policy shocks with limited negative financial shocks in spending. Public and public revenue and the impact was studied through the existence of long-term relationships that link fiscal policy shocks, i.e. quantitative changes in public spending and public revenue on monetary stability. The boundary test within the Autoregression techniques of distributed Lag demonstrated the existence of a long-term relationship between fiscal policy shocks and monetary stability in Iraq.

An important issue for the EMU countries is to what extent fiscal policy can be used to stabilise the domestic economy in the case of asymmetric macroeconomic shocks. The paper reviews possible reforms of national fiscal policy institutions in order to promote efficient fiscal stabilisation policy: (i) the introduction of a more transparent legal framework for the government’s stabilisation decisions; (ii) the establishment of an independent advisory Fiscal Policy Council; and (iii) the delegation of actual stabilisation decisions to an independent Fiscal Policy Committee. The conclusion is that the Fiscal Policy Committee solution has much to speak for itself. It seems possible to delegate fiscal stabilisation policy decisions, in much the same way as monetary policy has been delegated to central banks, at the same time as fiscal policy decisions focusing on income distribution and social efficiency are kept in the political sphere. Such delegation can be made compatible with democratic accountability.

This paper examines the effects of fiscal and monetary policies on the real sector under globalization by using the dynamic panel System-Generalized Method of Moments estimator technique with a sample of 79 countries during the 1998–2018 period. The paper primarily aimed to evaluate the roles of fiscal and monetary policies on the real sector by considering aspects of globalization. The results demonstrate that globalization has significantly distorted the role of expansionary fiscal policy on the real sector. Further, the role of monetary policy on the real sector has remained reliable under globalization in developing countries but not in developed countries. Moreover, the effects of economic globalization through trade and financial liberalization on the reliability of fiscal and monetary policies were also investigated. In accordance with the effects of globalization, trade and financial liberalization were found to distort the role of fiscal policy on the real sector; however, under trade liberalization, monetary policy was more effective for the industrial and service sectors than fiscal policy.

The effect of fiscal and monetary policy is transmitted in several ways by investor choice and the performance of investments. This study investigates how individual investors perceive government fiscal and monetary policy decisions and how they respond to such policy changes to make profitable investments. The data were gathered from a diversified group of 364 individual investors in the Colombo Stock Exchange (CSE) by administering a structured questionnaire focusing on their opinions of fiscal and monetary policy changes. Factor analysis was carried out to identify the meaningful fiscal and monetary policy actions that determine individual investment decisions and performance. The results of multiple regression analysis show that the government’s choice of tax instruments has a significant influence on stock returns and all taxes jointly depress investor investment performance. Government expenditure as a fiscal policy variable has a positive impact on investor returns, implying that a continual increase in government expenditure will result in the enhancement of firm profits and returns to investors by allowing stock prices to go up. Thus, market participants might assume that expansionary fiscal policy signals an increase in future returns. Further, a decline in interest rates and an increase in money circulation under monetary policy impacts positively on investors’ investment performance. As expected, an increase in money circulation in the economy will persuade investors to invest more in stocks as extra funds are available. These results have important implications for both investors and stock market analysts in their effort to understand the impact of fiscal and monetary policies on the stock return expectations of individual investors, but they should consider both fiscal and monetary policy decisions and their interactions together rather than in isolation.

We assess the role of national fiscal policies, as automatic stabilizers, within a monetary union. We use a two‐country New Keynesian DSGE model, incorporating non‐Ricardian consumers and a home bias in national consumption. Fiscal policy directly stabilizes non‐Ricardian agents' consumption. By doing so it contributes to the reduction in the volatility of variables such as output, wage inflation, and real interest rates. Our analysis of country‐specific shocks does not suggest potential inter‐country conflicts (as long as policies are constrained within the automatic stabilizers framework). However, we detect a potential conflict between the two consumer groups, because fiscal policy may raise optimizing agents' consumption volatility.

This study examines foreign aid effectiveness in poverty reduction in Africa with focus on the role of regional fiscal policy on education and health. The study employs panel dynamic ordinary least squares (DOLS) estimation technique and covers the period 1980-2017. The results reveal that foreign aid augmented with effective fiscal policy on education significantly improves the income level in all the regions except Central Africa, and consumption in the Western and Central regions. When augmented with effective fiscal policy on health foreign aid enhances households’ income in West and Central Africa and consumption in West and Southern regions. Furthermore, foreign aid augmented with effective fiscal policy in education (health) reduces poverty headcount in the West and Central (in all regions except Central) regions of Africa. The study concludes that foreign aid augmented with fiscal policy on education improves income in all regions except Central Africa; and West and East Africa when augmented with health expenditure. To sustain the effectiveness of foreign aid in Africa there is the need to improve governments’ allocation to the health and education sectors to deepen households’ income.

This study investigates the comparative effect of fiscal and monetary policy on economic growth in Pakistan using annual time series data from 1981 to 2009. The cointegration result suggests that both monetary and fiscal policy have significant and positive effect on economic growth. The coefficient of monetary policy is much greater than fiscal policy which implies that monetary policy has more concerned with economic growth than fiscal policy in Pakistan. The implication of the study is that the policy makers should focus more on monetary policy than fiscal to enhance economic growth. The role of fiscal policy can be more effective for enhancing economic growth by eliminating corruption, leakages of resources and inappropriate use of resources. However, the combination and harmonization of both monetary and fiscal policy are highly recommended.

Macroeconomic Gains from Structural Fiscal Policy Adjustments:The Case of Colombia Hernando Vargas (bio), Andrés González (bio), and Ignacio Lozano Policymakers worldwide are drawing key lessons from recent academic debates on the role of fiscal policy in the recovery of advanced economies. Many emerging markets have already addressed some of the focal issues currently being discussed, in response to the collapse of their economies in the late 1990s. Some of the key issues include the timing of adjustments and their progressive nature; the need for fiscal stimulus programs and their scope; the proper choice of fiscal instruments and their potential effectiveness along the cycle; and the appropriate public-debt threshold to avoid hampering economic growth.1 Regardless of the tenets followed, many governments were compelled to adopt tight financial stances in this earlier episode, mostly due to credit market restrictions. By the turn of the century, Colombia, like several other Latin American countries, was on a growth-recovery path based on a broad set of structural economic reforms. In particular, the Central Bank of Colombia had adopted an inflation-targeting regime with a floating exchange rate, which enhanced the institution’s credibility and counteracted external shocks. The government also implemented prudential measures to strengthen the financial system and labor market policies to promote flexibility and competitiveness, and the economy was becoming increasingly integrated into global trade and financial [End Page 39] markets. However, the cornerstone of all the reforms was the rebalancing of the government’s finances by improving its revenues, rationalizing expenditures, and establishing new and effective institutions. The overarching goal was to attain a sustainable path for the country’s public debt, as well as its long-term economic growth. Not surprisingly, this set of cautious policies had further effects on the short- and long-term behavior of the macroeconomy, particularly its response to exogenous shocks. First, the country overcame a rising and unsustainable debt path through a series of reforms that decreased the ratio of debt to gross domestic product (GDP) between 2003 and 2008 and fostered its current stability. Second, explicit policies to diminish the currency mismatch of the government’s finances lessened their vulnerability to sharp depreciation episodes and adverse external shocks. Third, the composition of the public debt was shifted toward fixed-rate, peso-denominated bonds with longer maturities, thereby deepening the local sovereign debt market. This paper highlights some relevant aspects of Colombia’s fiscal policy and public debt management during the past ten years and assesses some of their short-term macroeconomic effects. In particular, we analyze the influence of fiscal policy changes on the short-term output response to fiscal shocks and the impact of monetary policy shocks on market interest rates. To do so, we used the structural nonlinear impulse response functions suggested by Auerbach and Gorodnichenko and by Jordà.2 We also identify the unexpected fiscal and monetary policy shocks through methods inspired by the narrative approach of Romer and Romer and also Ramey.3 We conclude that a sound fiscal policy brings strong countercyclical benefits to both monetary and fiscal decisions. Fiscal Policy in Colombia The adoption of a new constitution in 1991 implied a strong expansion of the size of government in Colombia. Increased demand for public spending on health, education, and justice drove the central government’s primary expenditures from 7.2 percent of GDP in 1990 to 12.4 percent of GDP in 2000. At the same time, the constitution of 1991 and legal reforms extended fiscal decentralization and imposed a regime in which an increasing fraction of the central government’s current revenues was transferred to local governments. The tax increases adopted to pay for the additional expenditures were not sufficient and [End Page 40] had to be shared with local governments, which, in turn, increased their spending. In addition, the intertemporal solvency of the pay-as-you-go national pension system was questionable, given its prevailing parameters and the coexistence of a defined-contribution private pension fund system. By the end of the 1990s, fiscal sustainability in Colombia was uncertain. The ratio of central government debt to GDP was rising fast, and several local governments were over-indebted. The external shocks...

Croatia has joined the European Union as a country with several substantial structural problems, of which the most important is weak competitiveness. Although competitiveness can be viewed from the ?institutional? perspective, which includes World Development Indicators (WDI) and Doing Business reports, in this paper the authors focus on the more standard view of competitiveness based on unit labour costs (ULC) and real effective exchange rate (REER). As a small, open and highly dollarized/euroised economy that has to coordinate its economic policy with the EU policy framework, Croatia has limited space for increasing international competitiveness using monetary policy measures aimed at (nominal) devaluation of the national currency. Therefore economic policy stakeholders should focus on decreasing unit labour costs and real effective exchange rate mainly through the process of internal devaluation, which is based on adequate fiscal policy measures. In this paper the authors analyse the role of monetary and fiscal policy in the deteriorating real effective exchange rate and unit labour costs since 2000, and their current capabilities and restrictions in restoring international competitiveness. The Structural VAR model (SVAR) is used to estimate the effects of foreign (banking) capital, credit growth, and current public expenditure on REER and ULC. The preliminary hypothesis of the paper is that monetary policy should continue to support bank lending activities and the role of fiscal policy is to achieve an internal devaluation, which will increase the competitiveness of the Croatian economy. Restoring international competitiveness is necessary due to its impact on net exports and consequently the economic recovery of the national economy, which has faced recession conditions for five years in a row. Also, restoring competitiveness is one of the most important preconditions for the success of a small country joining the single European market.

This paper analyzes investment behaviour in Malawi's private and public goods sectors between 1967 and 1988, taking into account partial liberalization and contractionary fiscal and monetary policies associated with the IMF-supported structural adjustment program. Numbers of studies on investment demand in developing countries have focused on whether or not public investment crowds out private investment. Public investment may compete with private investment for scarce physical and financial resources, at least in the short term. However, public investment is also expected to complement private investment by creating infrastructure and raising the productivity of private capital stock. Partial liberalization is expected to have a negative effect in the short-run on private investment due to inflationary pressure. Contractionary fiscal and monetary policies are expected to have a negative effect on public investment. II. THE ANALYSIS In this study, factors influencing both private and public investment are investigated, and the hypothesis that public investment affects private investment is tested. A variant of the neoclassical flexible accelerator model discussed by Haque, Lahiri, and Montiel (1990) is applied. Private investment is specified as a function of the price of capital relative to the wage rate, real output and the beginning-of-period capital stock. Due to difficulties with the measurement of capital stock in developing countries and the expected influence of public investment on private investment, the estimating model is modified. Following Blejer and Khan (1984), the desired stock of capital is assumed to be proportional to expected output and an adaptive expectations framework as suggested by Cagan (1956) is used to

The New Consensus approach in macroeconomics is criticised for its exclusive but unwarranted reliance on stabilising monetary policies, for its ill-designed approach to the role of wages and wage policies, and for its complete neglect of fiscal policies. From a Post-Keynesian perspective, it is argued that fiscal policies play an important role for macroeconomic development, albeit the whole macroeconomic policy-mix of monetary, fiscal and wage policies as well as open economy conditions should be considered. Based on this view macroeconomic performance and macroeconomic policies in France, Germany, Sweden and the UK between 1996 and 2005 are analysed, with a special focus on the role of fiscal policies. It is shown that the fiscal policy stance is important for the explanation of different developments in these economies. However, fiscal policies are not the whole story, monetary policies, wage policies and open economy conditions matter as well.

We assess the role of national fiscal policies, as automatic stabilizers, within a monetary union. We use a two-country New Keynesian DGE model which incorporates non-Ricardian consumers (as in Gali et al. 2004) and a home bias in the composition of national consumption bundles. We find that fiscal policies stabilize the aggregate economy but, in some cases, generate conflicting views among national policymakers. Finally, model determinacy requires that national fiscal feedbacks on debt accumulation be designed with reference to the debt dynamics of the entire monetary union. This is in sharp contrast with the Brussels consensus based on the view that the ECB alone should stabilize the union-wide economy and national fiscal policies should react to idiosyncratic shocks and to national debt levels.

The purpose of this paper to apply the new econometric literature on non-nested hypothesis testing to the issue of whether income or the appropriate scale variable in money demand functions. This important for two reasons. First, as MacKinnon points out empirical work using non-nested hypotheses tests still all but non-existent [11, 106]. Hence this paper helps fill one significant void in the applied econometrics literature. Second, the issue is it income or it wealth an important one, (as explained below) but, unfortunately, an unsettled one. Early research by Chow [1], Laidler [7] and Meltzer [12] that utilized a variety of goodness-of-fit and t tests generally concluded that the appropriate variable. The results of more recent research utilizing the same methodology are mixed. For example, Goldfeld [6] and Lieberman [10] argue income the appropriate variable, while Friedman [3] argues it wealth. The view taken in this paper that even though the argument over the proper scale variable an old one, it remains an important one and deserves to be examined through the prism of new econometric methods. The issue of the relevant scale variable remains important because the money demand function plays a crucial role in both monetary and fiscal policy. On the monetary side, successful implementation of an interest rate approach to money stock control rests on the Federal Reserve's use of the correct money demand function. If the Fed employs a misspecified money demand function, it will not know the federal funds rate that consistent with its money targets and, as a result, will miss those targets. Similarly, money demand plays a crucial role in fiscal policy. If money demand does not depend on wealth, then the often cited portfolio crowding out effect that monetarists claim offsets bond-financed fiscal stimuli [4] non-existent. Hence, even bond financed government purchases are expansionary.