Budget Constraint Approach Research Articles

Valuing resources in Thailand using the budget constraint method

This study develops comprehensive monetary conversion factors for Thailand to apply in life cycle assessment (LCA) in order to account for environmental externalities associated with products and services. An innovative methodology integrates resource scarcity alongside six determinants within the budget constraint approach to derive lacking economic production factors. The estimated potential gross economic production per capita represents the willingness to pay for alleviating damages. Impact assessment data is then monetized into quality adjusted life years, biodiversity adjusted hectare years, and monetary values. The resulting factors enable consistent valuation of environmental costs and benefits of products and services alongside techno-economic aspects. The outcomes are relevant to sustainability assessment and reporting needs by offering localized means to quantify dependencies and externalities. Application of developed monetary conversion factors to energy, transport, industry, infrastructure, and tourism sectors can internalize environmental impacts from production and consumption activities. The methodology provides policymakers and businesses with a holistic measure to make informed decisions aligned with sustainability goals and resilient economic growth. By reconciling development with resource conservation, this research aims to steer decisions that improve societal well-being and economic growth in balance with the planet.

Hard talk, costly walk: The evolution of a soft budget constraint syndrome in a football club at the periphery of Europe.

A football club is exposed to a soft budget constraint (SBC) syndrome if it still survives after finding it impossible to break even financially in the long run. This in-depth case study presents a historical analysis of the evolution of an SBC syndrome in a top-tier Arctic football club over 30 years using public archive data. In oral speeches, strategy documents, and other official situations, the hierarchy at the club emphasized the importance of operating in a financially sustainable manner, that is, complying with a hard budget constraint approach (HBC). The club went along this path during the first years after entering the top tier in the mid-1980s. This was made possible by a team of low-cost local players. However, in line with increased media and sponsorship revenues in the 1990s, the economic threshold for competing at the top-level rose. Thus, during the last two decades of the club's financial history, the budget constraint (BC) approach softened. Primarily, a distant benefactor and capital injections from a joint-stock company owned mainly by the local bank and local energy company funded the overspending. Furthermore, the study uncovers how a soft financial control and monitoring system introduced by the national football association failed to emancipate the club from the SBC syndrome. The study finally suggests some measures that can eventually harden the BC at this as well as many other financially struggling European football clubs.

Budget Deficit Sustainability: An Application to Turkey

In this study, sustainability of budget deficits in Turkey is examined empirically for the pe- riod from January 2006 to September 2020, using time series techniques based on monthly data, under the intertemporal budget constraint approach. In the analysis phase, the Johansen cointegration method was used for the long-term relationship of the series. Analysis results indicated that income and expenditure series are not cointegrated. It is concluded that budget policies for the period under consideration in Turkey are unsustainable; therefore, the applied fiscal policies should be reviewed.

Sustainability of Current Account Deficit in Turkey

Purpose: This study aims to examine the sustainability of the current account deficit in Turkey for the quarterly data between 2003 and 2018. Besides, some policy implications are made to ensure the sustainability of the current account deficit in Turkey's economy. Design/methodology/approach: The dynamics related to the sustainability of the current account deficit is analysed within the framework of the intertemporal budget constraint approach developed by Husted (1992). The long-term dynamics are empirically investigated using the Johansen cointegration test. Econometric analysis is also expanded within the framework of the Vector Error Model to reveal the short-term dynamics. Findings: The results of Johansen cointegration analysis suggest that current account income and expenses are integrated with the cointegrating coefficient less than 1, implying that Turkey has a weak form of current account deficit sustainability. Findings of the Vector Error Correction model confirm the results of long-run analysis and indicates that the deviations from the long-term equilibrium are corrected at a rate of 78% every quarter term. Research limitations/implications: The intertemporal budget constraint approach developed by Husted (1992) focuses on the equilibrium between current account income and expenses to analyse the sustainability of the foreign balance. However, the sustainability of the foreign deficit is also closely related to what kind of capital inflows is used to finance the foreign deficit. Therefore, the implications made regarding the sustainability of the current account deficit in Turkey based on the Husted model should be accepted with some reservations. Originality/value: Since external imbalances are a key challenge for most of the developing countries to provide full integration into the world economy, many empirical studies are examining the current account sustainability. The majority of these studies focus on the long-run dynamics of the current account imbalances. Unlike most of the previous studies, this paper also focuses on the short-run dynamics of the current account balance. Thus, the difference of this study from other studies stems from the examination of the dynamics of current account sustainability not only in the long term but also in the short term.

Clower’s Dual-Decision Hypothesis is economics

Abstract. Though Wu (2017) has shown Clower’s Dual Decision Hypothesis leading to Keynes’ change in saving (and disequilibrium) conclusion, it is important to compare Clower’s budget constraint approach with other models, including those found in Hall’s consumption theorem and similar approach. In Clower, by assuming that, consumers may not satisfy the budget constraint, one cannot automatically assume Hall’s consumption theorem to hold. And, by showing how households need to optimize contingent on the satisfaction of their budget constraint, Clower was, in effect, creating a feedback mechanism. Keywords. Keynes, Clower, Keynesian, Disequilibrium, Dual Decision Hypothesis, Consumption, Martingale, Saving, Growth, Income, Trade, Feedback. JEL. A10, B2,B22, C20, E20, E60, F00, J00, N10.

Budget constraint and the valuation of environmental impacts in Thailand

This study aims to develop a valuation scheme for environmental impacts in Thailand. This would assist in integrating environmental concerns into economic assessment tools such as cost-benefit analysis (CBA), system of environmental-economic accounting (SEEA), etc., which could be used in policymaking. The damage categories considered are human health and ecosystem quality. The value of a quality-adjusted life year (QALY) measuring damage to human health is estimated using the budget constraint approach. The value of a biodiversity-adjusted hectare year (BAHY) measuring damage to ecosystems is calculated relatively to the value of a QALY. Potential economic production per capita, which is considered as the willingness to pay (WTP) for a QALY, is in the range 458,000–566,000 Thai baht (THB) (equivalent to 14,000–18,000 USD where 1 USD ≈ 32 THB). The value of a BAHY, which is expressed in terms of the value of a QALY, is in the range 7900–9800 THB (or around 250–300 USD), based on the exchange rate between the protection targets for ecosystems and human well-being. These results are tested by applying to the monetization of potential environmental burdens from producing several biofuels and petroleum-based fuels in Thailand; the environmental externalities account for about 20–40 % of the retail price. The results can benefit policymakers in terms of decision-making on environmental management. Besides, the pathways to derive the monetary value of environmental impacts could be useful for other countries.

Current account sustainability in Middle East and Africa (MEA) countries: Evidence from panel data

Countries in the Middle East and Africa (MEA) have diverse economic structures. Some countries are oil exporters, some are oil importers and some countries are very poor, dependent on agriculture. Since current account is an important indicator of an economy’s health, it is of interest to examine if current account balances in MEA region are sustainable. However, empirical research paid scant attention to this issue. No study has been conducted before to examine this issue. The present paper makes an attempt to fill this research gap by employing panel data model over the period from 1995 to 2014 to examine current account sustainability in MEA countries. We follow intertemporal budget constraint approach and examine long-run relationship between export and import plus interest on net foreign debt. As we work with panel data, we pay special attention to cross-section dependence. We use annual data collected from World Development Indicators. All data (exports, imports and interest on long-term external borrowing) are in current US dollar and expressed as percentage of GDP. Interest payment on long-term external borrowing (also in current US dollar) is used as a proxy for interest on net foreign debt. Panel unit root test to cross-section dependence indicate variables are first-difference stationary. We next use panel cointegration and bootstrap critical values under null hypothesis to accommodate cross-section dependence. Panel cointegration result suggests that current account is sustainable. However, panel cointegrating regression estimation indicates that the value of sustainability coefficient is less than 1 (one), which implies that current account is weakly sustainable. As current account is weakly sustainable, it is desirable to make policy intervention at macro level to ensure strong sustainability. This may be achieved by accelerating ongoing trade reforms in MEA countries to boost export earnings and hence ensure the sustainability of external debt in the long run.

Consequential Effects of Budget Deficit on Economic Growth: Empirical Evidence from Ghana

The study evaluates budget deficit sustainability of Ghana between 1960 and 2010 using the present value budget constraint approach. By applying annual time series data, the ADF and PP tests for unit root rejected the null hypothesis at 1 percent significance level after first difference. Hence, both government expenditure and revenue of Ghana are stationary and integrated of order one. The Granger causality test supported a bi-directional causation such that both expenditure and revenue of Ghana have temporal precedence over each other. This means past and present values of government revenue provide important information to forecast future values of expenditure. The test for cointegration favored the sustainability of budget deficit of Ghana at 10 percent significance level in the strong sense. In this case, government can continue to service its past accumulated deficits without large future correction to the balance of income and expenditure. Again, the study achieved the conventional negative sign of the speed of adjustment to long run equilibrium following shocks to the system at 5 percent significance level.

Budget Deficits Sustainable? An Empirical Analysis for OECD Countries

In this study, budget deficit sustainability in OECD countries, are investigated via intertemporal budget constraint approach in 1980-2012 periods and quarterly data used. In analysis firstly, Cross Sectionally Dependency (CD) in country was examined CDLM test (Cross Sectionally Dependency Lagrange Multiplier) developed by Pesaran (2004). Stationary of series was searched CADF test (Cross-Sectionally Augmented Dickey-Fuller) developed by Pesaran (2006) considering CD. Cointegration relationship among series was examined panel cointegration test with multiple structural breaks developed by Basher and Westerlund (2009). As a result of analysis, cointegration relationship between the series was determined. According to the long- run analysis, budget deficits of these countries are sustainable in weak form.

The need for regulating professional soccer in Europe

PurposeThe purpose of this paper is to argue for the necessity of regulating European club football financially, in order to create a fair structure of sporting competition.Design/methodology/approachBy deploying the soft budget constraint approach – originally developed by Hungarian Economist János Kornai in order to understand (public) business behavior in socialist and post‐socialist economies – and combining it with empirical analysis, the paper develops an understanding of why the majority of European top league clubs are loss‐makers and why regulation is needed. The paper rests on its application of the soft budget constraint approach to build its argument and uses existing empirical research in order to support it within the field of European professional football.FindingsThe paper finds substantial evidence of soft budget constraints in professional football clubs, and argues that softness punishes the few financially well‐managed clubs in sporting terms for balancing their books.Research limitations/implicationsFrom a theoretical point of view, the new perspective of soft budget constraints takes political, cultural and emotional aspects into account in order to understand economic behavior among professional team sports clubs. This gives promising new insights into the discipline of sports economics and sports management.Practical implicationsThe paper's findings demand action to be taken to secure financial fair play in order to deal with issues of equal sporting competition. It argues that this must be done through a central regulation scheme covering all European leagues, thus endorsing the new UEFA financial fair play program. At the same time, however, the paper recognizes the problems in implementing the program efficiently.Originality/valueThe originality and value of the paper is its application of a new theoretical approach that clarifies the problems of European professional football and the reasons why regulatory solutions are necessary to harden the budget constraints.

Piece-wise or differentiable budget constraint? Estimating labour supply function for Finnish females

Various estimation approaches have been used in recent literature to study the effect of nonlinear income taxation on labour supply. Different techniques and data sets have produced a wide range of income and substitution elasticities. In this study, we utilize register data provided by the tax authorities. This gives us good possibilities to construct detailed budget constraints for each individual in our sample. We estimate labour supply function using the piece-wise linear budget constraint approach and the differentiable budget constraint approach suggested by MaCurdy et al. (1990). Our results support the view that if one is able to mimic the actual budget set closely and if the degree of progression is high then these two methods are likely to produce similar results. Some sensitivity analysis is also carried out using alternative assumptions concerning the budget sets.

Macroeconomic Evaluation of Programme Aid:A Conceptual Framework

Summaries The author examines aggregate and categorical fungibility for the recipient of untied foreign exchange. Aggregate fungibility considers the impact of the funds received on either external account aggregates such as imports or exports, or the overall level of revenue, expenditure and government borrowing. Analysis of categorical fungibility looks inside the item of most interest to the donor (import composition in the case of import support and sectoral expenditure for counterpart funds and budget aid). These questions are best answered by macroeconomic modelling, but the data are rarely available. Hence a more ad hoc approach must be used. Aggregate fungibility may be analysed through the construction of a counterfactual balance of payments and government budget, where behavioural reactions are judged by the evaluator on the basis of own analysis, existing studies and guestimates. Categorical fungibility may be analysed using the budget constraint approach in conjunction with a counterfactual government budget.

Ricardian equivalence for local government bonds: Budget constraint approach

It is shown that if consumers own land, the free rider problem does not occur because a change in local government financing is completely reflected in the price of land. This means that the Ricardian equivalence theorem holds not only for national government bonds but also for local government bonds.