Fiscal Adjustment Research Articles

Higher education in times of neoliberal adjustment and loss of rights

Abstract This article presents some of the reflections made in a research group of the Graduate Program in Social Work of the Fluminense Federal University in the State of Rio de Janeiro, Brazil. The reflections are based on bibliographic research and document analysis regarding the different phases of neoliberal counterrevolution in Brazil, discussing the permanent fiscal adjustment policy - that aims to ensure the payment of public debt - and its consequences in public spending on higher education. The conclusions indicate that government actions lead to deepening the precariousness of public universities, expansion of the privatization of higher education, and regression of workers’ rights, suggesting the rise of a new stage of the class struggle in the country.

The Discursive Construction of Europe in Italy in the Age of Permanent Austerity

AbstractCombining a Critical International Political Economy theoretical perspective with Critical Discourse Analysis, the article explores, from the late 1980s to present and across the party‐system, the characteristics of the discursive construction of Europe in Italy as a source of legitimation and naturalization of the country's permanent fiscal adjustment and economic restructuring. Through an original analysis of the official policy documents enacted by Italian governments, I show that the resort to Europe and 'risanamento' (permanent fiscal adjustment) are discursively constructed, by domestic political forces, as legitimating strategies to tackle fiscal profligacy and restore growth, notwithstanding the fact that in Italy (1) primary state budget has been in surplus from the early 1990s, (2) economic growth has been mediocre since the 1990s, and (3) social inequalities and macroeconomic imbalances have risen sharply, especially after 2008 crisis due to prolonged austerity measures. Furthermore, in contrast to the literature that sees Italian Europeanization as a pathway of virtuous economic and political change favoured by supranational integration, I argue that the discursive strategies developed by Italian political elites to legitimate change in national political economy should be broadly conceived, and analysed, as organic to neoliberalism and austerity as international hegemonic projects.

An evaluation of alternative fiscal adjustment plans: The case of Italy

What advice can be given to the policymaker to reduce the burden of public debt after a crisis? In this situation, the debt consolidation calls for fiscal surplus based on increases in taxes and/or reductions in public spending. This paper aims at answering to the above question. Specifically, it evaluates different policy options on the table using the estimated model of the Italian dynamic General Equilibrium Model (IGEM). Our main message is that plans aimed at reducing the public debt based on tax increases rather than expenditure reductions are more effective. Therefore, consolidation should be designed on the former.

A Política de Assistência Social Brasileira na Encruzilhada

O presente artigo examina o processo de implementação da política de assistência social brasileira, enfatizando o modelo de descentralização e de financiamento que lhe dá suporte. O objetivo é analisar esse modelo, que deu sustentação à implantação do Sistema Único de Assistência Social (Suas), apontando suas fragilidades e limites, a partir do resgate do seu processo de institucionalização, da análise do perfil do gasto no setor e dos constrangimentos legais colocados pelo contexto atual. Dados do gasto em assistência social nos últimos anos revelam a centralidade da corresponsabilidade federativa para sua sustentação, assim como forte priorização dos programas de transferência de renda, em detrimento dos serviços continuados, no âmbito federal. Procurou-se demonstrar que o ajuste fiscal advindo da aprovação da Emenda Constitucional n. 95 fragiliza a continuidade dos serviços e benefícios já implantados, colocando os municípios brasileiros em uma encruzilhada

Borrowing for Growth: Big Pushes and Debt Sustainability in Low-Income Countries

AbstractThe paper evaluates big push borrowing-and-investment programs in a new model-based framework of debt sustainability that is explicitly designed for policy analysis. The new framework is grounded in a fully-articulated, dynamic macroeconomic model. It allows for financing schemes that mix concessional, external commercial, and domestic debt, while taking into account the impact of public investment on growth and constraints on the speed and magnitude of fiscal adjustment. Supplementing concessional loans with nonconcessional borrowing in world capital markets is generally a high-risk, high-return strategy. It may greatly enhance the prospects for debt sustainability or lead to spectacular failure; much depends on the fine details governing debt contracts, the dynamics of growth, and the speed of fiscal adjustment.

Republic of Congo

The Republic of Congo was hit hard by the oil price shock and delayed fiscal adjustment, amidst governance challenges and unsustainable debt. While program negotiations were long and complex, the authorities made decisive progress in 2018 and early 2019 with decisive fiscal consolidation, and the implementation of a large package of structural reforms, including two rounds of prior actions to improve governance and transparency. In addition, financing assurances have been secured.

Expansionary Austerity and Reverse Causality: A Critique of the Conventional Approach

In this paper we methodologically review and criticize a broad literature of empirical work on the effects of fiscal policy (the ‘conventional approach’). Beyond previous critiques of this approach, we show that the cyclical adjustment strategy as used in this literature entails erroneous assumptions that necessarily produce flawed results in support of expansionary austerity. Specifically, the cyclically-adjusted primary balance (CAPB) strategy this literature employs fails to correct for cyclical effects in the expenditure-GDP-ratio, so that the estimates of the results of expansionary fiscal consolidation are affected by reverse causality, i.e. increasing GDP causally decreases expenditure-GDP-ratios, rather than vice versa. We provide suggestions on how to fix this incomplete cyclical adjustment problem with a new approach. After replicating two famous articles of the conventional literature and controlling for this bias, the expansionary effects of fiscal adjustments disappear or turn into their opposites.

DELAYED FISCAL ADJUSTMENT AND ECONOMIC GROWTH: EMPIRICAL EVIDENCE USING AUTOREGRESSIVE DISTRIBUTED LAG BOUND TESTING MODEL

This study is an attempt to quantify the delayed fiscal adjustment using an accounting framework and to test its short and long run effects on growth in Tunisia by using Autoregressive Distributed Lag (ARDL) model over the period 1975-2015. We find that delayed fiscal adjustment hurts per capita GDP growth not only in the short run but also in the long run, which raises arguable evidence that the implementation of IMF supported programs is truly necessary in Tunisia in time of crisis particularly when public finance regulatory forces and the ability to adjust fail and become non-functional. This implies that any delay in bringing forward fiscal reforms is counterproductive in the short run and will result in net losses in per capita GDP growth in the long run.Keywords: Fiscal Sustainability, Delayed fiscal Adjustment, Economic Growth, ARDLJEL Classifications: E61 E62DOI: https://doi.org/10.32479/ijefi.8026

Fiscal Adjustments and Social Spending: An Analysis of the Indian Economy

The higher and unsustainable levels of debt have forced the economies to undergo consolidation policies to improve their fiscal position. However, such policies can impact both economic growth and welfare spending owing to their deficit dependence. The current study analyzed the debt dependence of welfare spending and tried to evaluate the impact of consolidation strategies on the long - term social and welfare spending in case of the Indian economy. The study employed the time - series data covering the time period from 1990 - 2018 concerning 13 variables broadly grouped under three headings, that is, spending on education, health, and welfare. The study utilized the technique of generalized method of moments technique (GMM). The study found that the deficit financing nature of the government is a significant determinant of social and welfare spending in the Indian economy. A 1% increase in the growth rate of deficit financing was found to augment the growth rate of spending on education by 0.13%, on health by 0.03%, on welfare by 0.15% with an overall impact of 0.11%. Such a debt dependence by the social and welfare spending raised doubts that a consolidation design may further endanger the already stagnating social and welfare spending. This is mainly if a consolidation programme pursued with an aim to infuse fiscal prudence heavily concentrates on the quantity rather than the quality of the design.

Déficit fiscal y dinámica económica del Ecuador. Salida del progresismo e implementación de un programa económico con el FMI

El artículo analiza las principales características del déficit fiscal de Ecuador y la aplicación de un programa con el FMI, situación que pondría fin al modelo de crecimiento distributivo y redistributivo implementado durante 10 años por el gobierno de Rafael Correa. Se argumenta que el ajuste macroeconómico es inevitable por la insostenibilidad fiscal. La propuesta gubernamental pretende poner en marcha un nuevo modelo de crecimiento de transición, sustentado en el ajuste fiscal; la inversión privada en reemplazo de la inversión pública; apalancamiento de las exportaciones no petroleras; la baja intervención del Banco Central; y un fuerte proceso de liberalización del mercado de trabajo. Palabras clave: Política fiscal; crecimiento económico; economía ecuatoriana. URL: http://revistas.uta.edu.ec/erevista/index.php/bcoyu/article/view/689

Reducing Public Debt: The Experience of Advanced Economies over the Last 70 Years

This paper investigates the episodes of public debt reduction in advanced economies since the Second World War. We find 30 episodes of large reductions in the public debt-to-GDP ratio. Four main approaches succeeded in lowering the debt ratio. First, after the end of WWII, high and unexpected inflation eroded a large share of public debt. Second, during the Bretton Woods era, a mix of financial repression, high economic growth and moderate inflation helped reducing public debt. Third, since the 1980s, several advanced economies followed orthodox fiscal adjustments, namely improving their primary balance by reducing expenditure and/or raising taxes. The fourth approach (debt restructuring) was implemented only in one case: Greece in 2011-12. One key finding of our paper is that debt reduction has never been achieved by relaxing fiscal policy (cutting taxes or increasing expenditure), hoping that this would set in motion a growth process sufficiently strong to lower the debt ratio (the so-called “denominator approach” which has recently become fashionable in some countries, including Italy). The empirical evidence of the last 70 years suggests that running a sufficiently strong primary surplus is the only viable option to reduce public debt ratio nowadays, particularly in countries that are part of the euro area.

Determinants of Trust in Institutions in Times of Crisis: Survey‐Based Evidence from the European Union

AbstractWe employ Eurobarometer micro‐level data on trust in institutions, in order to explore its determinants, considering socio‐demographic characteristics, and macroeconomic indicators. The main contribution of our analysis is the investigation of the potential impact of sovereign credit rating episodes and the adoption of bail‐out programmes. We find that trust in institutions is substantially eroded in countries that experience downgrade episodes and participate in fiscal adjustment programmes while it is significantly strengthened following credit rating upgrades.

Debt sustainability, structural breaks and nonlinear fiscal adjustment: empirical evidence from Algeria

This research work seeks to examine a specific issue of the Algerian public debt sustainability using a nonlinear model approach. The results obviously indicate that the existence of threshold effects in the Algerian public debt depends on the sixth lag in oil price (US $ 80.85 per barrel). Thus, nonlinear unit root tests accept the null hypothesis of the unit roots; this intends to convey that the time series of public debt is not stationary and therefore cannot sustain the public debt in Algeria over the long term.

Consequences of Fiscal Adjustment and Public Finance Management. The Costs of Limiting the Fiscal Imbalance in Eurozone Countries

Abstract This article focuses on the effects of corrections to the budgetary policy in eurozone economies. The goal of the text is to check if advancement in implementing modern tools of public management is helpful in the time of fiscal adjustment. We assume that the most important role of a performance approach in conducting fiscal policy is the ability of government to implement active policy meant as structural changes in the composition of public expenditures. In the case of the need to cut general levels of public spending, public sector managers who have knowledge of performance effects of public policies should be able to conduct fiscal adjustment in such a way as to minimise negative outcomes of spending correction on society. The structure of the text is as follows. First, we present some insights on the economic effects of fiscal adjustment. Then, we discuss the concept of performance management presented in the theory and policy agendas of international institutions such as the European Union or the OECD (Organization for Economic Cooperation and Development). Finally, we present the result of an empirical exercise that is designed to combine the level of advancement in implementing performance budgeting (PB) and the social cost of fiscal adjustment in eurozone economies. The most important finding of the research is that PB tools seem to have very limited usefulness in a time of fiscal adjustment. There is no statistical evidence that countries advanced in utilisation of PB tools conduct more active fiscal policy – approach of cutting all expenditures across the border by given percentage rather than looking at priorities and social outcomes of fiscal adjustment dominates in all cases.

An alert on the recent fall of the fiscal reaction in Brazil

ABSTRACT Recent evaluations of how the Brazilian government’s primary surplus reacts to the evolution of the debt to GDP ratio convey two important (and worrisome) messages: first, the reaction function has been almost steadily decreasing since 2012. Second, it has turned from positive to negative figures as of October 2017. With effective real interest rates (over the net government debt) higher than prospects of GDP growth, negative figures for the fiscal reaction function mean a non-sustainable debt trajectory. Therefore, significant fiscal adjustments are required in the short run.

ФІНАНСОВА СКЛАДОВА ДЕЦЕНТРАЛІЗАЦІЇ: СУЧАСНИЙ СТАН ТА ТЕНДЕНЦІЇ РОЗВИТКУ


 
 
 The article analyzed the results of reform fiscal decentralization. Investigated the combined budget figures of communities that already have a direct relationship with the state budget. The state of intergovernmental relations. The main problematic aspects of fiscal decentralization reforms. Grounded key areas to improve the mechanism of fiscal adjustment and offered practical recommendations aimed at solving urgent problems of further implementation of reforms. Direction of future research is to assess the budgetary risks in the context of the reform of fiscal decentralization.
 
 

Economic stagnation and recession: the difficult Italian transition to the Monetary Union

ABSTRACTThe stagnation of the Italian economy since the mid-1990s can only be understood with reference to the great transformations that occurred in the previous two decades. This long interval was characterized by a process of rapid modernization and, also, by economic policy mismanagement. These changes generated an inefficient institutional model, a dysfunctional variant of the coordinated market economies of Continental Europe. In the mid-1990s Italian policymakers had to make painful and swift fiscal and institutional adjustments to correct economic imbalances and comply with the provisions of the Maastricht Treaty. These adjustments were, however, incomplete and did not solve the two most important problems that explain the fragility of the Italian economy in the financial crisis: stagnation of productivity and little internal adjustment (in terms of wage dynamics and reallocation of labour and capital across sectors and firms) to fend off the consequences of a loss of competitiveness in world markets.

Tangling with the Troika: ‘domestic ownership’ as political and administrative engagement in Greece, Ireland, and Portugal

ABSTRACTThis paper analyses variation in the degrees of difficulty involved in negotiating and implementing loan programmes with the international lenders in Greece, Ireland, and Portugal. All three countries displayed high degrees of ultimate compliance with fiscal consolidation and structural adjustment conditionality, but the pace of implementation varied significantly. This paper argues that ‘domestic ownership’ of the loan programmes is a key determinant of outcomes, understood in terms of two dimensions: negotiating capacity and implementation capacity. Empirical evidence confirms that these concepts provide a strong explanatory framework for understanding variation in relations between national governments and the international lenders.

Can emerging markets be a source of global troubles again?

After two turbulent decades (1980s and 1990s) when emerging-market economies were frequent victims of financial crises, in the first two decades of the 21st century their macroeconomic performance improved. Nevertheless, there were three crisis episodes that hit some of these countries: (i) the spill-over effects of the global financial crisis in 2008–2009; (ii) the consequences of the decline in commodity prices in 2014–2016 for their exporters; (iii) the turbulence in Argentina and Turkey in 2018. Currency crises in Argentina and Turkey in 2018 underlined again the key role of prudent domestic policies. Early policy correction can help to prevent a crisis and avoid its economic, social and political costs. If crisis cannot be avoided, the comprehensive anti-crisis package, including up-front monetary and fiscal adjustment, should be adopted as quickly as possible to arrest market panic and reverse negative expectations.

ANALYSIS OF CHANGE OF REGIME OF BNDES. IMPACTS OF PUBLIC SECTOR OVER THE PRIVATE INVESTMENTS

As soon as BNDES (State Development Bank) change its interest rate calculation methodology, an econometric analysis with panel data is be made, through an endogeneity relationship between the variables investment (private), BNDES loans and market issuance of shares), with the purpose to estimate the impact of the change in interest methodology as early as 2016. The impact on the endogenous variables was estimated and a forecast was made of borrowing costs as well as of private investment. The results corroborate the hypothesis that the BNDES does not encourage new investments, serving only as an alternative financing, which would not justify National Treasury subsidies for new loans. This opens way´s for fiscal adjustment but guaranteeing important social programs such as Bolsa Familia.