Expenditure Cuts Research Articles

The impact of managerial myopia on cybersecurity: Evidence from data breaches

Using a sample of U.S. firms for the period 2005–2017, we provide evidence that managerial myopic actions contribute to corporate cybersecurity risk. Specifically, we show that abnormal cuts in discretionary expenditures, our proxy for managerial myopia, are positively associated with the likelihood of data breaches. The association is largely driven by firms that appear to cut discretionary expenditures to meet short-term earnings targets. In addition, the association is stronger for firms with greater short-term equity incentives, higher earnings response coefficients, low levels of institutional block ownership, or large market shares. Finally, firms appear to increase discretionary expenditures upon the announcement of data breaches by their industry peers.

Accountability or Austerity? Examining the Practice of K–12 Early Fiscal Intervention During Periods of Economic Crisis

Little research has examined how K–12 fiscal accountability policies and practices intersect with district finances and student outcomes during periods of economic crises. Employing a critical policy analysis perspective that distinguishes between the concepts of fiscal accountability and fiscal austerity and differences-in-differences and event studies approaches, this study examines the practice of early fiscal intervention in California’s AB 1200 fiscal accountability system during and after the 2008 financial crisis and recession. In particular, the study estimates the relationship between early fiscal intervention, district finances, and student academic outcomes in mathematics and reading and language arts. Findings suggest that intervention led to significant cuts in per-pupil expenditures, resulted in no increase in state or federal revenues and an increase in local revenues through property taxes, and was negatively associated with student outcomes, especially in reading and language arts and for Hispanic/Latinx students. When taken together, the findings imply K–12 fiscal accountability in California was leveraged to promote fiscal austerity in educational spending during and after the 2008 financial crisis. Implications and policy recommendations are discussed.

Analysing cutback management strategies amidst the Covid 19 pandemic: Insights from Pennsylvania municipalities

IMPACT This study examines cutback strategies of Pennsylvania’s local governments during the Covid 19 pandemic, highlighting the importance of pandemic risk perceptions and managerial efficacy beliefs in shaping these strategies. It was found that heightened risk perception decreased the likelihood of expenditure cuts, while a strong belief in a jurisdiction's crisis preparedness often resulted in such cuts to manage budget shortfalls. Revenue enhancement strategies were preferred by governments engaging communities in response efforts. The study also underscores the efficacy of professional governments, particularly council–manager led ones, in implementing productivity gains over expenditure reductions. Although based in the USA, the findings offer global insights for managing resources during health crises, enhancing societal resilience, and providing a model for adaptable governance across diverse fiscal and socio-political contexts.

Decoding the government budget puzzle

Purpose: The relationship between public expenditure and revenue that determines the budget balance in the explanation of budget deficits is very important. This study aimed to examine the association between public spending and income in Turkey. Methodology: This article applies the continuous wavelet transform method (CWT) to study the relation-ship between government revenues and expenditures in Turkey. The study, which covers the period 2006-2020, consists of monthly data. The following four CWT tools were used in the analysis: Wavelet Power Spectrum, Cross Wavelet Power, Wavelet Coherence, and Phase Difference. Results: The results of the study, controlling taxes rather than expenditures, play a key role in reducing fis-cal deficits in Turkey in the short term. It is revealed that the dynamics of the budget balance in the medium term can be explained by the spend-tax hypothesis and that the tax burden can be alleviated by spending cuts. In the long term, results were obtained that support the spend-tax hypothesis. Conclusion: The paper reveals that taxes play an important role in controlling budget deficits in the short run. It turns out that the dynamics of the budget balance can be explained in the medium term by expendi-ture cuts and then the tax burden can be alleviated. In the long run, implementing fiscal policies based on public spending rather than taxation will be more effective against budget deficits.

Threshold of the CAPB That Can Be Attributed to Fiscal Consolidation Episodes in South Africa

This paper investigates the threshold of the cyclical adjusted primary balance (CAPB) that can be attributed to fiscal consolidation in South Africa. The CAPB framework is used in the threshold autoregressive regime (TAR) from 1979 to 2022. The contribution of the paper is the estimation of the CAPB in the context of South Africa to find fiscal consolidation episodes. Moreover, we identify the threshold of CAPB that can be attributed to fiscal consolidation, which the available literature is silent on. The TAR, first-order derivative and dummy variables are employed to find thresholds that can be attributed to fiscal consolidation episodes. By doing so, we provide valuable insights into the underlying dynamics of fiscal consolidation in the country, which can help policymakers develop more effective strategies for managing fiscal consolidation episodes. We estimated the success of fiscal consolidation on government debt in South Africa. There is a threshold of −1.28168%, 1.9182%, and 1.9270% for the CAPB of total government revenue increase, government expenditure cut, and the CAPB as a sum of both revenue and expenditure, respectively. These thresholds are different from the threshold of 1.5% advocated in the literature. It is recommended that a country-based threshold be used to find fiscal consolidation episodes. No or less fiscal consolidation is needed, as it results in less chance of reduction in government debt. Fiscal authorities must establish and execute a strategy for managing domestic government debt to avoid increasing its risk.

Time-Varying Elasticity of Cyclically Adjusted Primary Balance and Effect of Fiscal Consolidation on Domestic Government Debt in South Africa

This paper investigates the impact of the time-varying elasticity of the cyclically adjusted primary balance (CAPB) and fiscal consolidation on government debt. The time-varying parameter structural vector autoregression (TVP-VAR) model is used on a time series of data from 1979 to 2022. The contribution of this paper is on the understanding of the impact of fiscal consolidation on domestic government debt and the need to use time-varying elasticity when calculating the cyclical adjusted primary balance to provide a more accurate representation of discretionary actions taken by fiscal authorities. It is found that there is more variation in the CAPB with time-varying elasticity than with constant elasticity. Constant elasticity is not effective in capturing fiscal consolidation episodes, and time-varying elasticity is a better alternative. There is evidence that fiscal consolidation increases domestic government debt. The shocks of fiscal consolidation through government expenditure cuts reduce domestic government debt in the long run, while taxes increase domestic government debt. It is recommended that fiscal authorities use fiscal consolidation to reduce government expenditure that is related to inefficient expenditure. In the event of government expenditure, this expenditure needs to be in productive sectors of the economy that will bring about an increase in revenue rather than an increase in the tax rate. Given the result, a tax increase should be something that fiscal authorities are not using in the effort to stimulate economic growth or reduce domestic government debt.

C. H. Hanumantha Rao and Hans Linnemann (eds). Economic Reforms and Poverty Alleviation in India. New Delhi: Sage Publications, 1996. 271 pages. Hardbound, Indian Rs 350.00; paperback, Indian Rs 195.00.

The book under review is an edited collection of eight papers presented at a seminar on “Structural Adjustment and Poverty in India: Policy and Research Issues”, and is Volume 17 in the Indo-Dutch studies on Development Alternatives. The book evaluates the impact of economic reforms on poverty alleviation in India. In the “Introduction”, the editors describe the main theme of the book and propose some policy measures for poverty alleviation in the light of the findings of the papers included in the book. The paper, “Structural Adjustment in India—What about Poverty Alleviation?”, by Pieter A. van Stuijvenberg, evaluates the impact of India’s Structural Adjustment Programme (SAP) on the poor and suggests some policy corrections to mitigate the adverse effects of this adjustment on the poor. He observes an improvement in the balance-of-payments position and foreign exchange reserves without a simultaneous fall in gross domestic product under the SAP. His major concerns are the large size and composition of fiscal deficits (dominated by revenue deficits). The large size of fiscal deficits, according to van Stuijvenberg, drive up real interest rates and endanger investment-led growth. He observes that social indicators of the social safety net, employment, and rural development programmes have not improved much due to expenditure cuts on rural infrastructural investments. He suggests a reduction in the size and composition of the public sector, elimination of all explicit and implicit subsidies, and discouraging rent-seeking behaviour for a successful implementation of economic reforms.

Greece 2010–18: What Could Have Been Done Differently?

At the beginning of 2010, the fiscal situation of Greece was unsustainable, and an ambitious but costly adjustment plan had to be put in place under a consortium of the International Monetary Fund, the European Commission and the European Central Bank. It took three consecutive adjustment programmes, including debt-relief through private sector involvement, to restore confidence in the economy and achieve a budget surplus. In this paper, we provide a theoretical analysis of the Greek Crisis starting from 2010. We build a series of counterfactuals using the National Institute General Econometric Model (NIGEM) to analyse why the cost of the adjustment in terms of GDP loss and increase in debt-to-GDP ratio turned out to be much worse than expected. In doing so, we analyse three scenarios: (i) one in which we simulate a much more conservative cut in public investment by the Greek central government; (ii) a second scenario of a lower risk-premium, signalling, e.g., lower political and re-denomination risks, had the European Central Bank guaranteed its lending of last resort role earlier than 2012; (iii) finally, a similar financial envelope as the one adopted during the first Greek adjustment programme but over a longer period, moving beyond the standard IMF three-year duration programmes. We find that the mix of expenditure cuts and loss of confidence among households and firms explain a large part of the unanticipated costs of the adjustment in the Greek crisis.

Cuts to local government spending, multimorbidity and health-related quality of life: A longitudinal ecological study in England

SummaryBackgroundPopulation health has stagnated or is declining in many high-income countries. We analysed whether nationally administered austerity cuts in England were associated with prevalence of multimorbidity (individuals with two or more long-term conditions) and health-related quality of life.MethodsWe conducted an observational, longitudinal study on 147 local authorities in England. We examined associations of changes in spending over time (2009/10-2017/18), in total and by budget line, with (i) prevalence of multimorbidity, 2+ conditions (2011/12-2017/18), and (ii) health-related quality of life (EQ-5D-5L) score (2012/13-2016/17). We estimated linear, log-log regression models, incorporating local authority fixed-effects, time-varying demographic and socio-economic confounders, and time trends.FindingsAll local authorities experienced real spending cuts, varying from 42% (Barking and Dagenham) to 0·3% (Sefton). A 1% cut in per capita total service expenditure was associated with a 0·10% (95% CI 0·03 to 0·16) increase in prevalence of multimorbidity. We found no association (0·003%; 95% CI -0·01 to 0·01) with health-related quality of life. By budget line, after controlling for other spending, a 1% cut in public health expenditure was associated with a 0·15% (95% CI 0·11 to 0·20) increase in prevalence of multimorbidity, and a 1% cut in adult social care expenditure was associated with a 0·01% (95% CI 0·002 to 0·02) decrease in average health-related quality of life.InterpretationFiscal austerity is associated with worse multimorbidity and health-related quality of life. Policymakers should consider the potential health consequences of local government expenditure cuts and knock-on effects for health systems.FundingMedical Research Council.

The Impact of Public Budget Distortion on the Defence Capabilities of the New European Nato Member States

Abstract Armies’ capabilities are determined by their endowments of resources. The economic crisis that began in 2008 has distorted public budgets, which forced states to start cost-cutting policies. If we focus on the policy of new NATO member states, we can observe that public expenditure cuts affect defense budgets in different states in various ways. If we compare the defense capabilities of countries at the beginning of the economic crisis and ten years after the outbreak of the crisis, the reduction in defense spending is reflected in the loss of some defense capabilities due to the limited possibilities of maintaining and modernizing existing military equipment. Countries that have reduced their defense spending over the long term show a more significant loss of defense capability than countries that reduced their defense spending only in the period immediately after the economic crisis. The different approach to defense spending confirms the previously described phenomenon of free-riding by some NATO member states, which rely on the defense capabilities of their alliance partners while they are slowly losing their defense capabilities.

Tax Amnesty: An Old Debate as Viewed From Current Public Choices

The Clinton administration arrived with specific, well-advertised goals: job creation, a comprehensive national health care program, economic recovery and a commitment to reduce the constantly increasing federal deficit. There is no question that President Clinton has established these policy objectives as the primary criteria upon which he desires his forthcoming leadership efforts to be judged by the electorate. Success on these domestic issues would enhance his position for re-election in 1996, and would merit well-deserved respect for leadership and judgment. Whether all of these separate but related goals can be achieved within both the short and long term, without being counter-productive to each other, presents one of the more intriguing enigmas faced by the administration.Job creation and a comprehensive national health care program will necessarily consume more revenue in the short term. Consequently, the federal deficit will increase unless new resources are found to pay the costs of these programs and unless acquisition of such resources does not significantly impair the economic recovery in progress. Indeed, the current economic recovery can, on its own, deliver significant dividends. Nevertheless, the search for resources will be one of the more consuming and politically sensitive issues facing President Clinton. The new resources may be generated by any of the following items: (I) a cut in government expenditures, including mandatory programs; (2) an economic dividend generated through restructuring of the health delivery system; and (3) an increase in tax revenues. Notwithstanding the anticipated economic dividend to be generated from the restructuring of a health delivery system, it is likely that only cuts in federal expenditures coupled with increased tax revenues will provide the funds necessary to attain and sustain President Clinton's goals as laid out in his State of the Union Address.

A pandemic triad: HIV, COVID-19 and debt in low- and middle-income countries

This article assesses the impact of the HIV and COVID-19 pandemics and debt dynamics on health, HIV and pandemic preparedness and response-related financing in developing countries. Using a novel dataset, we did a cross-national systematic analysis of all data sources available for government expenditures on health, HIV, COVID-19 and debt servicing in selected developing countries. We found an inadequate multilateral response with the ensuing gaps allowing both pandemics to thrive. The G20 Debt Service Suspension Initiative and the Common Framework only covered countries with a third of the global population of people living with HIV. Rising and unsustainable debt levels are limiting the capacity of governments to protect the health of their populations. Government spending is already falling in response to high debt payments. Specifically, debt servicing is crowding out lifesaving investments. In 2020, for every USD 5 available, USD 4 was spent on debt servicing. Only USD 1 was invested in health. This is a binding constraint on countries’ efforts to control COVID-19. Even with a gargantuan effort to increase health expenditure, the outlook for health financing remains negative. Fiscal consolidation, with a heavy emphasis on expenditure cuts, is expected to take place across 139 countries in the coming years. These findings suggest that fiscal policymakers should be concerned about the crowding-out and constraining effects of public debt. To this end, pragmatic recommendations are made to treat and cancel debt as a critical policy lever to accelerate the end of the HIV and COVID-19 pandemics in developing countries as a key condition to addressing the growing inequalities and to ensure debt can be a benefit, not a burden.

Fiscal Policy and regional inequality in Brazil

Abstract This paper aims to estimate the long-term impacts of an austerity policy in the Brazilian regions. Our main contribution is to measure those effects using a dynamic interregional general equilibrium model, capturing the indirect impacts in sectors and regions, in addition to the direct effects of the expenditure cuts. The main results show that the fiscal adjustment would attenuate growth in most of the Brazilian states by 2037. Municipalities located in the poorest regions would be relatively more affected. Furthermore, the adjustment would have a negative impact on regional inequalities in all scenarios, both at the state and municipal levels.

How do fiscal adjustments work? An empirical investigation

Recent empirical evidence suggests that fiscal consolidation based mainly on tax hikes has a more recessionary impact on economic growth than that based on expenditure cuts. This paper evaluates the effects of fiscal adjustment plans identified through the narrative approach on the U.S. macroeconomic activity. To do so, I incorporate fiscal plans into a vector autoregression model to investigate transmission channels of fiscal consolidation and accompanying policy. I check whether monetary policy, uncertainty, or financial markets can explain the heterogeneous effects of fiscal adjustment plans. I find that the financial market and macro uncertainty channels are the most important ones.

Determinants of substantial public debt reductions in Central and Eastern European Countries

Government debt development is a timeless issue in economics that has gained even more attention in light of the global financial crisis and the Covid 19 pandemic crisis. The following paper uses several specifications of a logistic probability model to examine the key determinants underlying substantial public debt reductions in Central and Eastern European EU Member States for the period 1996–2020. The results suggest that fiscal adjustments are more likely to be successful in reducing public debt if they are based on expenditure cuts rather than revenue increases. In this context, cuts in social benefits and government employee compensation prove to be particularly effective. In addition, favourable economic growth rates increase the probability of a substantial reduction in government debt.

Higher Taxes for Fiscal Consolidation? Expected and Unexpected Effects of Municipal Tax Policy

During episodes of fiscal consolidation in public budgets, there are different instruments to choose from. The literature shows broad consensus that expenditure cuts are preferred, whereas tax increases tend not to support the fiscal aim. The paper examines instruments for fiscal consolidation at the municipal level in Germany presenting theoretical and empirical findings in favor of revenue-based instruments, focusing on the case of municipalities in the Free State of Saxony. German municipalities can autonomously control several positions on both the expenditure side and the revenue side. Options for expenditure cuts are given both for voluntary and compulsory tasks. On the revenue side, municipalities have the opportunity to set assessment rates on both local trade taxes and property taxes. For this part of the consolidation process, the prevailing opinion is that higher taxes are offset by lower grants, which is not the case in reality. Nevertheless, there are cannibalization effects to consider that may induce primary effects in the short and medium term. Hence, the paper shows an updated view of the drawbacks and opportunities of revenue-based fiscal consolidation. The paper provides evidence for an economic and political discussion that predominantly focuses strongly on the harmful effects of tax increases on the economy.

Extending differences-in-differences frameworks to Granger equations: evidence from cutback management during three recessions

PurposeThe authors show how to extend difference-in-differences (DiD) frameworks to Granger (1969) equations, a technique that tests for the parallel trends assumption and measures changes in effect sizes over time. To illustrate how these equations work, they apply them to state cutback management decisions in three recessions.Design/methodology/approachThis study applies quantitative methods. The authors estimate DiD frameworks as Granger (1969) equations.FindingsAfter empirically analyzing recessions that started in 1990, 2001 and 2007, the authors find that states deepen expenditure cuts when economic declines lengthen and tend to make large cuts to specific expenditure categories instead of spreading cuts equally over all service areas.Originality/valueThe authors offer two contributions of methodological value. First, they introduce the estimation of Granger equations to the study of topics in public administration. Second, they show how this technique helps to evaluate the impact of economic declines on state spending. By instituting these contributions, they offer a unique way of analyzing cutback management decisions.

Tough Choices: New Jersey Schools during the Great Recession and Beyond

This study examines the medium-term effects of the Great Recession on school finances in New Jersey using detailed school district panel data and an interrupted time series analysis. The authors find that the recession led to sharp cuts in school funding and expenditure, in spite of the federal stimulus. These cuts deepened as the stimulus abated. An analysis of variations by metropolitan area reveals that the Camden metro area, the highest poverty area reviewed, experienced considerably larger cuts in expenditures when the stimulus receded compared with other areas. The findings are important for understanding how recessions and fiscal policy affect school finances. They show particular relevance for the current pandemic-driven recession as state and local funding shortages threaten education financing despite a federal relief package. Two key implications are that funding cuts can widen inequalities in school spending and that adverse effects may deepen as the relief dissipates.

A Social Policy Theory of Everyday Borrowing: On the Role of Welfare States and Credit Regimes

AbstractDebt has become an essential part of many people's daily lives. This article develops a new comparative political economy perspective on the relationship between welfare states and household borrowing. I argue that the ways in which welfare states distribute benefits, and credit regimes provide access to credit, affect how individuals address social risks and, as a consequence, shape patterns of indebtedness. Permissive credit regimes substitute for social policies in limited welfare states, pushing economically disadvantaged groups into debt. Alternatively, credit markets complement social policies in the provision of financial liquidity in comprehensive welfare states, protecting vulnerable groups through government benefits while allowing less‐protected affluent groups to borrow money. In restrictive regimes, people instead rely on savings, expenditure cuts, and family support. I test these arguments using an original measure of credit regime permissiveness, cross‐national survey data, and full‐population administrative records from Denmark and panel data from the United States.

How Do Fiscal Adjustments Work? An Empirical Investigation

Recent empirical evidence suggests that fiscal consolidation mainly based on tax hikes has a more recessionary impact on economic growth than those based on expenditure cuts. This paper evaluates the effects of fiscal adjustment plans identified through the narrative approach on macroeconomic activity. I incorporate fiscal plans into a vector autoregression model to investigate transmission channels of fiscal consolidation and accompanying policy. I check whether monetary policy, uncertainty, or financial markets can explain the heterogeneous effects of fiscal adjustment plans. I find that the financial market and macro uncertainty channels are the most important ones.