Budget Consolidation Research Articles

Фінансування дефіциту державного бюджету України в умовах воєнного стану

As a country that faces constant economic turbulence, Ukraine is dealing with several challenges. This includes a significant increase in the deficit of budget resources while needing to finance military expenses, all while trying to maintain macroeconomic stability. This article focuses on the specifics of financing the deficit of the state budget of Ukraine during martial law. The financing of the state budget deficit is analyzed in terms of the classification of budget financing by the type of creditor and the type of debt obligation. These indicators were significantly affected by the military challenges in 2022 and the first half of 2023. The article also covers the budget deficit’s coverage analysis at the expense of revenues from the privatization of state property and the issuance of military government bonds, which gained popularity in Ukraine. The authors emphasized the importance of cooperation between the state and IFIs and other institutions as an essential source of financing for overcoming the deficit of the state budget. This form of cooperation is necessary for maintaining the country’s financial stability and resilience to face complex challenges. The article examines the measures to cover the budget deficit in military conditions, including the need to carry out budget system reforms, cost optimization, searching for new sources of income, expanding the tax base, and improving the efficiency of the tax system, which can provide additional funds in the budget. Other measures include financial transparency, investment stimulation, budget consolidation, increasing transparency, fighting corruption, improving conditions for entrepreneurship, achieving low and stable inflation, expanding the tax base, and speeding up the privatization of state enterprises.

Умная бюджетная консолидация

Budget consolidation aims at the correction of budget imbalances and the reduction of national debt. There are approaches to defining budget consolidation through the primary budget deficit reduction and through the improvement of the ratio of the adjusted primary balance to potential gross domestic product. As a rule, the focus of budget consolidation measures is associated with the budget expenditure austerity or revenue growth promotion. The study of the International Monetary Fund and the budget consolidation programs of selected OECD countries identified tools and activities that can be classified as hard, aggressive, soft, and smart budget consolidation. The paper provides an overview of budget consolidation tools and their impact on macroeconomic indicators. The empirical analysis completes the study in relation to the national debt sustainability for the domestic economy and the economy of foreign countries. The author analyzes the dynamics of national debt parameters for individual countries, as well as for groups of countries depending on the economic development level, and concludes on the necessity of implementing budget consolidation measures in the post-crisis period. The approaches to budget consolidation are typologized. The key smart tools for smart budget consolidation are the technologies of budget account liquidity management, the technologies of tax administration, electronic public procurement, the “social treasury” mechanism, and pooling of subsidies. Institutional smart tools include rapid budget expenditure reviews, tax expenditure optimization, and the enhancement of the role of budget councils. Smart budget consolidation tools do not depend on the crisis and recovery periods, but are aimed at the permanent efficiency improvement both of expenditures and revenues of the budgets of the budgetary system. Using flexible tools, it is possible to mitigate the negative effects of budget consolidation, including lag. The advantages of smart budget consolidation are proved through the socio-economic effects, which are provided by the education and healthcare expenditures. Correlation-regression analysis showed a direct strong interelation between these expenditures and the income index of the population. The author proposes to increase the level of efficiency of budget expenditures and budget revenues through the application of a dynamic set of budget consolidation tools related to the use of management and digital technologies.

A Green Fiscal Pact for the EU: increasing climate investments while consolidating budgets

ABSTRACT To ensure sufficiently rapid decarbonization to meet the Paris Agreement goals, investments in green infrastructure will have to increase by an estimated 2% of world GDP annually, according to the International Energy Agency. A significant part of that investment will need to be funded with public resources – raising major tensions between consolidation needs after the high deficits during the pandemic and the need to increase investments. We consider this trade-off in the European Union, which has set itself one of the most ambitious climate targets in the world. The additional public investment required to meet the European Union’s climate goals is around 0.6% of GDP annually during this decade, which might increase if the green transition is accelerated due to Russia’s invasion of Ukraine. Budget consolidation can be done at a moderate pace in line with EU fiscal rules if those rules are interpreted flexibly, but past consolidation episodes resulted in major public investment cuts. A ‘green golden rule’ –excluding net green investment from the fiscal indicators used to measure fiscal rule compliance– is proposed as the most promising option to address this tension and would provide a positive incentive to undertake such investments. However, the uncertain growth impact of green public spending and the risks to growth from climate change create difficult trade-offs in fiscally weaker countries. Better regulatory policy and a higher price on emissions should in parallel incentivise private green investment and reduce public costs. These ingredients should be combined to form a ‘Green Fiscal Pact’. Key policy insights Public investments tend to be cut in fiscal consolidation episodes by vote-maximising politicians and thus need to be treated differently in fiscal rules. Increasing green public investments will be difficult in the upcoming consolidation period. A ‘green golden rule’ –excluding net green public investment from the fiscal rule indicators– is proposed as the best option to incentivise public climate investment. Policymakers need to underpin such a rule by clearly defining what constitutes emission-reducing climate investments and monitoring compliance. Fossil fuel subsidies should also be eliminated, and private climate investment should be incentivised through appropriate taxation and regulation. Climate change may tighten budget constraints in countries with already high debt levels because of its negative growth effects, so these countries should delay the introduction of the green golden rule.

Effectiveness and counter‐cyclicality of fiscal consolidation under compliance regulation: The case of the Stability and Growth Pact

AbstractIn this study we examine the impact of the European Stability and Growth Pact (SGP) on narratively identified fiscal adjustments whose prime focus is to reduce the budget deficit and compare the effects with those on the primary and the structural budget balance. The cross section of EU and non‐EU economies and the sample period 1980–2014 allow for an assessment of the SGP regarding its effectiveness, cyclicality, and the type of fiscal adjustments (tax hikes vs. spending cuts) as compared with counterfactual scenarios. Our findings indicate that the SGP has effectively boosted budget consolidation measures identified by means of the narrative approach, whereas it had no overall impact on the primary and an overall minor impact on the structural budget balance. However, the effectiveness of the SGP has varied considerably over time. All measures indicate that the SGP was particularly effective in the period after the introduction of the Euro, except for the 2 years following the financial crisis in 2008. We find no evidence that fiscal policy has become more procyclical under the SGP. Finally, fiscal consolidation under the SGP favors spending cuts, whereas the application of tax hikes shows no sizeable differences as compared with the reference group.

Wachstum durch Beschäftigung: Potenziale der deutschen Volkswirtschaft

Abstract Germany’s labour market faces substantial challenges caused by demographic change in the next decade. However, a country comparison with Sweden and Switzerland reveals hidden labour market potentials. Raising the employment rate towards the Swiss level implies an increase of 1.83 billion labour hours. An alignment of weekly working hours as well as annual working weeks in Germany with the (higher) values of those in Sweden and Switzerland would raise annual labour volume to 4.71 billion working hours. A reduction of involuntary part time work in Germany leads to an increase of 691 million working hours. A better utilisation of the existing labour force potential can thus contribute to tackle the adverse effects of demographic change and enable a state budget consolidation after the crisis.

Актуальные задачи финансового планирования доходов, расходов и покрытия дефицита государственного бюджета в субъекте федерации на материалах Тульской области

The article discusses the theoretical and practical tasks of planning revenues and expenditures in the regional budget. The dynamics and structure of the financial resources on the example of the Tula region for a number of years are analyzed from the perspective of budget consolidation. The impact of regional budget finances on the investment opportunities of the regional budget and the distribution of gross product in a crisis is considered. Based on the actual material, the role assigned to regional budget finances in achieving benchmarks for socio-economic development is revealed. The problems of repayment of the budget deficitt of the subject of the federation and possible ways to solve them are identified. The problems of the budget process are identified and directions for further improvement of the policy of financing public expenditures and diversification of sources of covering the regional budget deficit are proposed.
 The representativeness of the actual data and the author's calculation and forecast estimates is achieved on the basis of the use of general scientific and special research methods, such as analysis and synthesis, comparison, detailing, dialectical, balance and normative methods; elements of systematic and integrated approaches to finding solutions.
 The practical significance of the study is determined by the all-Russian attitude to strengthening budgetary federalism, motivating the regions of Russia in the direction of reducing the level of subsidization into revenue part of the budget of the region, reducing its deficit, increasing the share of its own sources of covering all planned budget allocations.

Budget Consolidation and Social Sector Spending: Does Fiscal Contraction Endanger Growth of Human Capital in India?

This study analysed the short- and long-term impacts of fiscal consolidation on social sector spending in Indian economy and thereby on human capital. Using autoregressive distributed lag framework, the study found that fiscal adjustments have significant potential to undermine the short- and long-run spending in human capital. A fiscal adjustment aimed at strengthening fiscal position of the Indian economy can have adverse impacts on the growth rate of income. Lower-income growth will imply increased constraint on part of the government to spend in public utilities like education and health. Similarly, a fiscal adjustment based on slashing government spending can adversely impact both short- and long-term welfare spending as these spendings are mainly financed by deficits. The policymakers while framing the design of a consolidation programme need to take extra precaution as far as the composition of these adjustments are concerned. Moreover, there is need of legislate aimed at changing the nature of welfare spending from discretionary to compulsory.

Global Trends and Effects of Fiscal Policy in 2021

The coronavirus pandemic in 2020 had a negative impact on the state of the Russian economy and the consolidated budget of the Russian Federation. At the same time, the budgetary system of the Russian Federation is sufficiently resilient to such external shocks. In 2020, borrowed funds from the domestic market were used to finance the budget deficit, partly from the Sovereign Fund, the amount of which, however, did not change by the beginning of 2021. Despite the spread of new strains of coronavirus infection and the relatively low level of vaccination in Russia, the recovery of the global economy and rising commodity prices contributed to a significant increase in consolidated budget revenues. At the same time, a policy of budget consolidation was pursued – those items of federal budget expenditures that unexpectedly increased in 2020 (primarily healthcare spending) were subject to reductions. The beginning of 2022 was marked by the emergence of new external shocks that significantly destabilize the economic and financial sphere of Russia. Now a certain level of budgetary stability has been achieved, which, among other things, will make it possible to solve new targets of the population and businesses support, but this is not enough in the medium term. Directions for operational measures of fiscal policy to restore the sustainability of public finances in the current environment are proposed.

The contribution of tax expenditure in fiscal consolidation in post-crisis economies: a case study of the context in Portugal

In this research, we analyse the use of fiscal expenditure as an instrument of fiscal consolidation policy. Portugal was subject to the financial assistance programme (PAEF) articulated with the IMF, the European Commission and the European Central Bank between 2010 and 2014. The objective is to analyse the evolution of fiscal expenditure in the following four years, after the end of that term programme, that is, between 2015-2018. The outcome is to know if the policy of reducing fiscal expenditure implemented in the years in which the programme was in force (2010-2014), continued into the following four years. We compared this evolution with the evolution of direct expenditure, based on two main axes: economic expenditure and social expenditure. The data collection technique is used through document research, and the data obtained was from information provided by national, European statistical authorities and secondary sources of information. It is concluded that, in the 2014-2018 period, the increase in public revenue, due to the decrease in tax expenditure, did not evolve consistently. In 2014-2018, direct public expenditure did not follow the same pattern as in the previous years of 2011-2014, given the functional equivalence of the two types of expenditure. Finally, to observe the relationship between the level of fiscal consolidation, carried out between the years 2010 and 2018, and the behaviour of tax revenue and expenditure, the Scheffé test was performed on the averages of the variables Total Revenue and Expenditure, and Tax Revenue and Expenditure. This was applied in order to observe if the averages of the variables are significantly relevant for the level of fiscal consolidation or if there are other variables, equally important, that were not taken into account in the study, but that had a preponderant role (such as the economic context). We have to statistically conclude that both the revenue and expenditure averages and the percentage averages are not all equal, as they are, in fact, all different between the groups analysed. In order to clarify if the differences in revenue and expenditure and in the respective percentages are statistically significant or if, on the contrary, they are merely eventual, we previously verified their applicability through the assumptions of normality and homoscedasticity of each of the data sets, using the ANOVA test (Fisher, 1918). We observed that for both the amounts of revenue and expenditure, as well as the percentages, the p-value observed in the ANOVA test was equal to 0.000 (i.e. less than 0.050), implying the rejection of the null hypotheses and the acceptance of the alternative hypotheses, according to which the average values of the amounts of revenue and expenditure, and the average values of the percentages are not all equal. The general conclusion is that there was budget consolidation, but this must have been due to other factors, such as the economic environment, since there is no direct relationship between revenue, fiscal expenditure and budget consolidation in any of the periods studied.

К ВОПРОСУ ОБ ИНВЕСТИЦИОННОфИНАНСОВОМ РАЗВИТИИ РЕГИОНОВ РОССИЙСКОЙ АРКТИКИ

In this article, the authors assessed the resource availability, investment opportunities and incomes of the population of the Russian Arctic in the context of the potential development of this territory. The study showed that natural resources are not the main condition for the formation of regional finances. Based on the conducted statistical analysis, it is shown that the regions under study have powerful industrial potential but have a rather low level of investment attractiveness. It was revealed that the current system of social guarantees does not compensate for living conditions in these territories. It is concluded that considering the identified interregional differences and peculiarities will make it possible to develop new solutions and approaches in matters of financial development of the Arctic territories. The authors believe that expanding the powers of regional authorities, reducing budget consolidation and developing mechanisms aimed at forming the institutional foundations of state regulation will help build up additional regional financial resources, eliminate the legal vacuum and develop special mechanisms to stimulate investment processes and attract investment resources for these territories.

РИСКИ ФИНАНСОВОЙ СИСТЕМЫ

Government interference in the social-economic processes through the implementation of anti-crisis measures and fiscal expansion holds the embodiment of financial risks for economic entities. As a result, government debt and budget gaps at the continuing drop of real disposable household income and companies’ profitability grow. Over a long-term horizon, the decisions made can cause a financial system misbalance and new risk generation, including systemic risks in the sphere of public finance. The author carries out the theoretical research of financial system risks, which can result in a decrease in the system stability in general. The study determines that there is no single theoretical concept of financial risks of the public sector. Within the research, the author analyzed the approaches to systemic risks in various economic sectors and decomposed systemic risk of the public finance sphere. The study specified global factors of influence on the financial system stability, determined the impact factors and common fiscal limitations considering the needs in the execution of state obligations. The pandemic factor – COVID-19 spread is highlighted as an exogenous factor of impact on the formation of financial system misbalances. The main threat to the financial system stability considered in terms of the functional-institutional approach is the deficiency of economic entities’ liquidity. Unprecedented budgetary measures of anti-crisis financial regulation, the deferred impact – tax preferences, and monetary measures had an immediate influence on the liquidity volume during the implementation of anti-COVID activities. Tools of budgetary monitoring, budget expenditures reviews, tax expenditures reviews, and budget consolidation ensure the budget mechanism flexibility. Factors producing financial system risks and the selected measures of state regulation will set the trends for the social-economic development of the country in the coming years.

Revisiting the political economy of fiscal adjustments

The political economy of fiscal adjustments is revisited within the framework of Alesina et al. (1998). A panel that spans from 1970 to 2016 for three datasets (European Union, Eurozone and OECD-19) is constructed. Both descriptive statistics and regression analysis is employed. We assess how successful are policies for budget consolidation. Panel logit and heteroskedasticity probit evaluate the probability of government’s survival after having engaged in tight (loose) fiscal policies. Economic variables and political characteristics of the cabinets are taken into account in the specifications. We reveal that the fiscal balance is an insignificant predictor for the changes of the prime minister or the ideology of the cabinet. Inflation and unemployment rate are significant and positively related to changes in government while spending adjustment composition dummies are negative and significant predictors for such changes. Revenue based adjustments have no effect on re-election prospects. Our results are robust to sensitivity checks, including various sub-sample analysis and non-linear specifications.

Las energías renovables en España

Las energías renovables se han convertido durante los últimos años en un sector de gran dinamismo en España. A la necesidad de aplicar las Directivas europeas para hacer frente a la problemática del cambio climático, se le han unido las exigencias de mejorar la eficiencia energética así como la de disminuir la dependencia del exterior.En este artículo se analizan las claves de este proceso, poniendo en evidencia tanto los factores que han posibilitado el rápido crecimiento de algunas tecnologías (eólica y solar preferentemente), como las limitaciones impuestas tanto por los procesos de consolidación presupuestaria como por el crecimiento acelerado de algunas de ellas.

Картографо-геоинформационное обеспечение реализации национальных проектов: социально-экономические, демографические вызовы и инструменты пространственного планирования

The demographic situation and the level of socio-economic development of the Russian Federation require new consolidated solutions that can ensure the dynamic socio-economic development of the country, ensure an increase in the quality of life of the population, its well-being, and, as a result, improve the demographic situation. One of the key decisions on budget consolidation is the national projects adopted by the decree of the President of the Russian Federation dated May 7, 2018 for the period up to 2024. National projects are developed in three areas: “Human capital”, “Comfortable living environment” and “Economic growth”. Achieving the targets and additional indicators that are defined in the passports of national projects is a key aspect of the implementation of national projects. The passports refer to improving the network of health facilities (FAP and outpatient clinics), educational facilities (schools), the network of educational institutions, projects for creating a comfortable urban environment, etc. To date, Russia does not have a monitoring system based on intellectual and innovative technologies that allows a comprehensive approach to the stages of implementation of national projects, to assess the effects (including changes in the socio-demographic situation) that the implementation of projects should provoke. Such technologies include geo-information systems and modern cartography. Based on international experience in creating various monitoring systems, as well as personal experience in organizing geo-information systems for monitoring ethno-demographic and migration processes, and territorial planning, the authors propose the concept of mapping and geo-information support for national projects, which is presented in the form of “GIS-national projects”. According to the idea, this GIS will improve the quality of management decision-making at all large-scale levels (country, subject, municipal district, locality), and will make it possible to understand the effects of the implementation of national projects.

УПРАВЛЕНИЕ ПРОФИЦИТОМ БЮДЖЕТА И ФИСКАЛЬНАЯ «ТОНКАЯ НАСТРОЙКА»

The subject of research of this paper is the specifics of forming and managing a budget surplus when providing economic growth for the national economy. The results of analyzing the concepts of a budget balance are presented, and directions for managing a positive balance of the state budget are revealed. The specifics of the macroeconomic politics of a surplus are given, and it is revealed that forming a “new” fiscal regime – surplus regime – requires a radical restructuring of budget management. The general typical features of countries with a long-term period of a budget surplus are revealed: focus on budget consolidation on the expenditure side of the budget and the ensuing complex budget reforms made aft er achieving a surplus. It is discovered that one of the main reasons for supporting a stable surplus budget in a number of the world’s countries is the radical restructuring of economic and financial priorities, which was caused by serious macroeconomic shocks. It is noted that when assessing the possibility of maintaining a budget surplus in specifi c countries, it should be taken into account that unfavorable macroeconomic events such as the financial crisis of 2008 or the global pandemic of COVID-19 in the current year (2020) are of crucial signifi cance for maintaining a surplus. According to the results of a comparative analysis of the dynamics of the level of budget deficit and the rates of economic growth, using the example of Switzerland and Norway for 2009–2019, no direct correlation between these indicators was discovered, and it was concluded that there was a lack of empirical evidence and appropriate theoretical generalizations about the existence of a cause-and-effect relationship between economic growth and the type of balance (deficit, surplus, “zero-based”) of the state budget. The advisability of using the budget surplus to reduce the tax burden and to reduce the level of state debt was assessed.

BUDGETING AS A BASIC FINANCIAL PLANNING

Based on the strategic objectives of the enterprise, has been determined relevance of budgeting and has been identified as essential to the effective development of operation activities. It`s proven, that budgeting – the process of organization the financial and economic management of economic entities, which based on the development of budget for responsibility centers and activities, monitoring of their implementation, analysis of budget anomalies and regulation of economic activity to harmonize and achieve results at all management levels. The rationale for the role of budgeting in financial planning is treated differently by scientists: establishment budget milestones without assigning lead; formation of the financial structure of an instrument of financial planning and controlling; that the budget is a management technology. It has been determined that budgeting, as a management technology, should include three interrelated constituent parts: technology (targets and standards, budget types, budget consolidation schemes, formats), organization (liability centers, budgeting and budgetary control regulations, distribution of roles and responsibilities between different management levels, slotting systems) and automation of financial calculation. Main causes of necessity for implementation budgeting in domestic enterprises are: lack of information on real costs, expenses and income in the enterprises; misuse of organization resources; significant financial loss; foreclosure crisis. Scientifically based budgeting principles established the practical application of which is a prerequisite for effective budgetary planning. The role of budgeting in financial planning was justified as well as its benefits for domestics’ enterprises. A number of problems need to be solved to realize of benefits of enterprises budgeting, namely: economic, technical, organization, social and information.

Is the “Debt Brake” behind Germany’s successful fiscal consolidation?

The German general government recorded a surplus for the fourth year in a row in 2017. The fast consolidation after the Great Recession coincided with the transition period for the full introduction of the federal debt brake. At the same time Germany’s economy is performing better than those of many other countries. Therefore it is nearly impossible to overrate the symbolic power of the debt brake as a seeming success story. We scrutinise this story by carrying out a comparative analysis of the “structural” consolidation of public finances in Germany for the period from 1991 until 2017, showing that the German debt brake is not the cause of the successful budget consolidation since 2010. The improvement of the general government finances since 2010 was smaller than in previous consolidation phases and was strongly supported by both a favourable macroeconomic environment and one-off effects. Finally, without the blessing of a strong upswing, Germany would hardly have become the fiscal role model for Europe, and the German debt brake would not have become the blueprint for the European Fiscal Compact.

EU fiscal governance and budget consolidation in Visegrád countries

Budget consolidations in Visegrád countries, which followed European financial and debt crisis, were mainly driven by external factors such as EU fiscal governance. Since the Visegrád countries have accomplished their consolidation effort, it seems topical to study their experience and assess the efficiency of consolidation measures. Involving descriptive statistical analysis, the authors posit that supranational impact on national budgets of Visegrád countries was quite efficient, as all economies concerned have accomplished a relatively sizeable fiscal consolidation. This happened largely due to the fact that the governments did not intend to lose vast amounts of funds from the EU budget. Such an option was quite feasible as a part of possible sanctions related to excessive deficit. The Czech Republic, Hungary, Poland and the Slovak Republic run different consolidations as to scale, structure and measures taken, though one could highlight some similarities. On the one hand, consolidations were to a great extent carried out through the means of indirect taxation, because they have a less distortive nature, given the structural characteristics of countries at issue. On the other hand, the governments refrained from raising direct taxes due to their distortive character. Hungary was the only country, which took some active measures in the field of corporate taxation, and subsequently suffered from drop in tax collection. The Visegrád countries did cut government expenditures, but strived to use the most effective instruments such as curbing employment in public sector. Further, there were some subsidiary factors at place that influenced consolidation pace. For example, three of four Visegrád countries are not members of a currency union, which inter alia contributed to monetizing government debt. At the same time, some measures taken by the countries, were of a quite formal nature. For instance, Hungary totally nationalized pension system in order to increase budget revenues. Nevertheless, all Visegrád countries reached deficit target without any revolutionary changes to main fiscal aggregates, which means that consolidations were at least nominally effective. However, cumulative deficit change was not fully accompanied by lowering debt and was by several times less than cumulative transfers from the EU budget. At the same time the budget consolidations in Visegrád countries could be called efficient as GDP growth rates restored, as did investors’ confidence and exports.

Sectoral effects of a Green Tax Reform in Portugal

Economic downturn coupled with serious and persisting environmental problems require a new regulation system to tackle these problems. The Portuguese government created the Commission for the Green Tax Reform in 2014, following the guidelines of the European Union in the sense that fiscal policy should contribute to public budget consolidation and sustainable growth. The Commission was commissioned to propose a simplification of taxation in order to promote economic competitiveness, environmental sustainability and the efficient use of resources. The aim of this paper is to present the results from one of the teams that have contributed to the Commission for the Green Tax Reform. We have followed the European Commission guidelines in order to simulate a Green Tax Reform with a static general equilibrium model and aligned to the political context. We found that (i) it is possible to enjoy a positive double dividend, (ii) to achieve improvements in the energy-trade balance and energy independence and (iii) to reduce the energy intensity of the Portuguese economy.

Budget consolidation in a small open economy: a case study for Slovenia

ABSTRACTIn this article, we use the macroeconometric model SLOPOL10 to calculate simulations of the development of the Slovenian economy until 2030. Starting from the present favourable prospects of the European economies, the forecast is very optimistic but it can nevertheless be improved by optimal fiscal policies as calculated using the OPTCON2 algorithm. If a negative shock to world trade of a size comparable to the Great Recession occurs, it will entail a decline in GDP and a slow recovery. In this case, optimal fiscal policies should not act in an expansionary way as the effectiveness of fiscal policy with respect to output and employment is rather limited in a small open economy like Slovenia. Instead, the goal of budget consolidation will call for a more restrictive fiscal policy, at least if the shock is temporary.