Case For Fiscal Policy Research Articles

Do Independent Central Banks Exhibit Varied Behaviour in Election and Non-Election Years?: The Case of Fiscal Policy in Africa

ABSTRACTThe study primarily investigates if the behavior and effectiveness of CBI on fiscal policy varies between non-election and election years. It also examines whether the effectiveness of CBI in improving fiscal performance is enhanced by higher institutional quality. Using recent CBI data f on 48 African countries, 90 other developing countries and 40 developed countries over the period 1970–2012, we apply a two-stage system GMM with Windmeijer small sample robust correction estimator and find that due to the strong incentives of political authorities to influence economic outcomes in election years, CBI has stronger effects on fiscal performance in election years compared to non-election years in developed countries only. However, given higher levels of institutional quality, CBI has stronger effects on fiscal performance in election years compared to non-election years in Africa and other developing countries also.

Fiscal Policy, Public Debt and the World Crisis

Abstract This study summarizes a theory of the origin of the current world economic crisis and the role of fiscal policy in mitigating its effect. The perspective is dynamic stochastic general equilibrium analysis. Overall, the model analysis suggests a strong case for fiscal policy if the monetary authority is unable/unwilling to close the output gap. This remains the case, even when explicitly taking into account public debt dynamics.

On Fiscal Policy and Budget Deficits

A major argument used against the use of fiscal policy comes from the view that there are automatic forces within an economic system to ensure high levels of demand. This paper argues that the case for fiscal policy in general rests on the proposition that there are no such market forces that ensure high levels of demand. There is, thus, a need for macroeconomic policy to perform this task. The argument against fiscal policy to the effect that it does not raise the level of economic activity, does not apply when this view of fiscal policy is adopted.

The Case for Fiscal Policy

The case for fiscal policy and for governments to manipulate on their budgets as appropriate with the specific objective of achieving high levels of employment arises from Kaleckian and Keynesian propositions. Put simply, the latter argue that no market mechanisms are in place to ensure that the level of aggregate demand is sufficient for high levels of economic activity (Kalecki, 1939; Keynes, 1936). Even so, many lines of argument have been developed to the effect that budget deficits and fiscal policy are ineffectual and/or have undesired (and undesirable) effects. Indeed, a great deal of work has been undertaken recently on the significance of fiscal consolidation. Countries only have to balance their budgets, run surpluses during the upswing, and expansion is in place (we have rehearsed and rejected many of these arguments in Arestis and Sawyer, 2003).

Some issues affecting the macroeconomic environment for the agricultural and resource sectors: the case of fiscal policy

The impact of structural changes in fiscal policy on macroeconomic stability in Australia and other developed economies since the mid‐1970s is assessed. The evidence points to a destabilising influence from fiscal policy from the mid‐1970s to the mid‐1980s, with a more stabilising influence since then. Within Australia, there is some evidence that structural changes to fiscal policy may have helped to stabilise interest rates and the real exchange rate over the period since the mid‐1980s. However, this stabilising influence on the real exchange rate may have reduced the extent to which real exchange rate movements have countervailed world commodity price changes in Australian dollar terms.

Imperfect Competition in an Overlapping Generations Model: A Case for Fiscal Policy

Imperfect competition is a meaningful feature for macroeconomic analysis only to the extent that it leads to properties qualitatively different from those obtained under perfect competition. In particular, we have to wonder how imperfect competition per se may found an effective fiscal policy. For that matter we consider a simple overlapping generations model with firms acting as Cournot oligopolists in the good market. Through fiscal policy, a government, keeping the stock of money constant, redistributes wealth among generations and absorbs some of the output to provide public services. We show in this model that fiscal policy, by affecting firms’ market power, can move the economy across perfect foresight stationary equilibria along a Pareto improving path, or that it can implement a full employment stationary equilibrium which Pareto-dominates underemployment equilibria.