Fiscal Authorities Research Articles

Towards a Cyber Resilient Banking System: Effectiveness of Cyber Fraud Risk Management Strategies Adopted by Commercial Banks in Zimbabwe

The advent of digital financial technology left the business community and its clients celebrating convenient ways of online shopping, paying bills and money transfers. However, digital banking technology came with its share of challenges, due to highly digitalised economies in the context of the Fourth Industrial Revolution, cyber fraudsters are increasingly targeting and leveraging on financial market infrastructures. Cyber security of banking institutions and the financial systems across the globe remains a major concern of Central Banks, investors, internal auditors and financial risk managers. The purpose of this research paper was to examine the efficacy of cyber fraud prevention measures used by commercial banks in Zimbabwe. The study also looked into the difficulties encountered in managing cyber-fraud. Results indicate that cyber fraud risk management strategies adopted by Commercial banks are partly effective which indicates existence of opportunities for cyber fraudsters to attacks and get away with it at the expense of clients, banks and the financial system as a whole. Results also indicate that Commercial banks are facing quite a number of challenges which include the following: lack of sophisticated systems, cyber attackers are always ahead, some of the clients do not take awareness messages send to them seriously, some clients share passwords and credit cards and lack of enough education and knowhow of employees. The study therefore concludes that, cyber fraud risk management strategies adopted by Commercial banks are partly effective. Monetary and fiscal authorities need to continue monitoring Commercial banks with regard to implementation of cyber security risk based supervision framework.

How Much Is Too Much Debt for South Africa? A Threshold Nonlinear Autoregressive Distributive Lag (T-NARDL) Perspective

Since the global financial crisis, South African fiscal authorities have acquired debt at a faster rate compared to other economies, which, according to recent growth theory, implies that the economy has a lower debt tolerance or threshold level than previously thought. Our study presents country-specific debt threshold estimates for the South African economy based on reduced form regressions derived from an endogenous growth model of public debt that incorporates public investment as a channel through which debt can influence economic growth. We estimate the reduced form regressions using the threshold nonlinear autoregressive distributive lag (T-NARDL) cointegration model which we apply to quarterly time series spanning from 1960:q1 to 2020:q4. We identify debt thresholds of 47 percent which are much lower than those predicted by previous panel-based studies. Similarly, the corresponding public investment threshold estimate of 2.8 percent is lower than that prescribed by previous literature. However, our study shows that both public debt and public investment are too high to be growth enhancing and we provide policy recommendations based on these findings.

Asymmetric Effect of External Debt and Foreign Capital Flows on Economic Growth: New Evidence from Nigeria

This research examines the asymmetric nexus between external debt and foreign capital flows on economic growth in Nigeria. The paper employed the non-linear autoregressive distributed lag (NARDL) methodology to investigate the asymmetrical effect of external debt on real Gross Domestic Product (GDP) growth in Nigeria. The estimated long-run parameters for positive and negative shocks of external debt are -1.08 and 3.09, respectively. The outcome indicated that a percentage increase in external debt will result in a 1.08 decrease in real GDP growth and that a one percent decrease in external debt will result in a 3.08 increase in economic growth. This illustrates that the receptiveness of real GDP growth to positive values of external debt is different to that of negative values of external debt. The reaction of real GDP growth to negative values of external debt is larger than to positive value of external debt. This suggests that it is imperative for Nigeria to have manageable external debt and fiscal sustainability as this would bolster its real economic growth as well as urge the fiscal authority to make concerted effort towards curbing corruption and reducing inefficiency to the barest minimum, as these will enhance growth. Keywords: Nigeria, external debt, economic growth, asymmetry, foreign capital inflows JEL Classification: C22, E62, F43, O11

Control of Trading Gold in Investment Gold in the Republic of Poland: Conditions and Fundamental Dilemmas

Abstract Investment gold and foreign-exchange gold are special forms of gold in legal terms. The adoption of such a status is related to the regulation of the legal and factual circulation of gold and the performance of financial control in this regard, which at various stages of trading takes the form of tax, customs and fiscal or foreign-exchange control. The rules and procedure for controlling gold trading are regulated by the provisions of tax, customs, banking and foreign-exchange law. The aim of this study is to analyze and evaluate the applicable provisions of EU and national law regulating the scope of the regulation of gold trading and its control by tax, customs and fiscal authorities and the National Bank of Poland. The essence and application of the most important control instruments are presented, which are individual foreign-exchange permits, notification of the intention to transport gold across the state border, and special records and public registers kept by entrepreneurs. The hypothesis about the basic objectives (ensuring the safety of trading and preventing money laundering offenses) and additional purposes (collecting statistical data necessary to construct the assumptions of the state monetary system, tightening the tax system) of gold-trading control was positively verified. The research primarily used the dogmatic-legal method, and a complementary historical-legal method was used to present the main directions of the evolution of legislation in the field of regulating gold trading.

A Fiscal Theory of Persistent Inflation

Abstract We develop a new class of general-equilibrium models with partially unfunded debt to propose a fiscal theory of persistent inflation. In response to business cycle shocks, the monetary authority controls inflation and the fiscal authority stabilizes debt. However, the central bank accommodates unfunded fiscal shocks, causing persistent movements in inflation, output, and real interest rates. In an estimated quantitative model, fiscal inflation accounts for the bulk of inflation dynamics. In the aftermath of the pandemic, unfunded fiscal shocks sustain the recovery but also cause a persistent increase in inflation. The model is able to predict the inflationary effects of the American Rescue Plan Act fiscal stimulus out of sample and with real-time data.

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.

Audit, presumptive taxation and efficiency: An integrated approach for tax compliance analysis

Audit cut-off rules are policy tools widely adopted by fiscal authorities with the aim to improve voluntary tax compliance. Despite their usefulness, audits are costly for the fiscal authority, so determining how best to allocate controls is a key policy issue. In the audit framework presumptive taxation could be used to identify the cut-off rule, allowing fiscal authorities to uncover firms’ under-reporting. However, an audit rule based on presumptions does not allow distinguishing whether the presence of under-reporting is due to voluntary non-compliance or to a lack of managerial skills. Therefore, this paper proposes to combine an audit rule based on a presumptive cut-off with a measure of efficiency, with the aim to solve the main weakness of the presumptive methods. In particular, we develop an integrated approach that is able to support the audit activities of fiscal authorities. For illustrative purposes we support our approach with an empirical application based on a sample of Italian firms.

Wall Street QE vs. Main Street Lending

Monetary and fiscal authorities reacted swiftly to the COVID-19 pandemic by purchasing assets (or “Wall Street QE”) and lending directly to non-financial firms (or “Main Street Lending”). Our paper develops a new framework to compare and contrast these different policies. For the Great Recession, characterized by impaired balance sheets of financial intermediaries, Main Street Lending and Wall Street QE are perfect substitutes and both stimulate aggregate demand. In contrast, for the COVID-19 recession, where non-financial firms faced significant cash flow shortages, Wall Street QE is almost completely ineffective, whereas Main Street Lending can be highly stimulative.

The Size Distribution of the Banking Sector and Financial Fragility

AbstractWe study the role of the size distribution of the banking sector for bailout policy and financial fragility in a model of financial intermediation with limited commitment and noisy sunspots. In particular, due to the different costs of mitigating depositors' losses, differences in financial fragility arise endogenously in the sense that the large banking market admits a higher degree of instability. Moreover, the desire to reduce differences in the amount of bailout funding across segments of the banking system leads the fiscal authority to collect less taxes ex‐ante but ends up rendering the scope for run equilibria larger.

MONETARY POLICY OF WORLD BANKS DURING THE PANDEMIC

MONETARY POLICY OF WORLD BANKS DURING THE PANDEMIC

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.

Externalities in International Tax Enforcement: Theory and Evidence

We show that the fiscal authorities of high-tax countries can lack the incentives to combat profit shifting to tax havens. Instead, they have incentives to focus their enforcement efforts on relocating profits booked by multinationals in other high-tax countries, crowding out the enforcement on transactions that shift profits to tax havens, and reducing the global tax payments of multinational companies. The predictions of our model are motivated and supported by the analysis of two new datasets: the universe of transfer price corrections conducted by the Danish tax authority, and new cross-country data on international tax enforcement. (JEL E62, F23, H25, H26, H87, K34)

Public Health Spending in the Philippines: A Cointegration and Causality Analysis Using Autoregressive Distributed Lag Approach

For several decades now, the budget allocated by the Philippine government health spending (public health expenditure; PHE) has steadily risen, but the desired health outcomes for Filipinos leave much to be desired if viewed historically. This study explains how per capita PHE in the Philippines is conditioned by a set of factors based on time series data from 1960 to 2019. To achieve this, an autoregressive distributed lag model with an error correction model component was designed to estimate long-run and short-run dynamics. Based on the results, income, youth population, industrialisation, and selected health outcomes significantly influence PHE. Since most of the factors exert significant effects, coupled with the finding of a long-run cointegrating relationship and fairly stable parameters, reliable PHE estimates can be made by Philippine health and fiscal authorities and enable policymakers to design and implement the needed level of intervention in the country’s public health sector.

THE CYCLICAL BEHAVIOUR OF FISCAL POLICY: ARE DEVELOPING COUNTRIES DIFFERENT, AND DO INSTITUTIONS MATTER?

The available empirical evidence shows that fiscal authorities commonly revert to procyclical fiscal policies instead of following the normative prescription of budgetary countercyclicality. The available empirical studies suggest that this phenomenon may be attributed to weak fiscal institutions. Hence, it is often advocated that strengthening institutions in the developing countries is a reliable way to improve the cyclical properties of fiscal policy. In this paper, we challenge this view by showing that the impact of institutions on the cyclical behaviour of fiscal policy is not uniform across all countries and differs significantly between advanced economies and the developing ones. In the latter, the impact of institutions on the quality of fiscal policy proves to be weak, which is in stark contrast to the strong relationship observed in developed economies. This surprising result suggests that the focus on improving institutional quality may be of little help as a tool to increase the countercyclicality of fiscal policy in the developing economies.

An Empirical Analysis of the Relationship between Key Macroeconomic Variables and Economic Growth in Nigeria (1980-2021)

This study adopts the Vector Autoregressive (VAR) model to analyze the relationship between key macroeconomic variables and economic growth in Nigeria, Using time series data sourced from the World Bank Development Indicators (WDI), for the period 1980 to 2021. The key macroeconomic variables analyzed are inflation, exchange rate and money supply. The result gives an average high R2 of 0.7000 which connotes that the overall model is a good fit. The result of the VAR analysis at lag two indicates that the variables are dynamically interacted. Starting with the growth (GDP) equation, a 1% increase in the previous year values of exchange rate, GDP, inflation, and money supply lead to a 0.3% increase, 33% increase, 3% increase, and 26% increase in current GDP respectively. Here, GDP and money are positively related. The money supply shows that a 1% increase in the previous year values of exchange rate, GDP, inflation and money supply lead to a zero per cent decrease, 8% decrease, 7% decrease and 91% increase in current money supply. The result is consistent with monetary policy given that the relationship between money supply and inflation. The equation of inflation shows that a 1% increase in the previous year values of exchange rate, GDP, inflation and money supply lead to 9% decrease, 33% decrease, 68% increase and 15% increase in the current level of inflation. The consequences of a growing inflation and high exchange rate phenomenon are so damning that Nigeria cannot afford them. Such implications are glaring in the economy of Nigeria where many negative developments were traceable to the non-availability or insufficiency of foreign exchange for businesses especially small and medium enterprises (SME’s) with a frequent rise in general price level. Therefore, the need to aptly address this ugly development by the monetary and fiscal authority cannot be overemphasized. Keywords: Money supply; economic growth; VAR model, Inflation and exchange rate. DOI: 10.7176/JESD/14-8-06 Publication date: April 30 th 2023

Updates on the Taxation of Lease Income in 2023

This article discusses the amendments made by Government Ordinance No. 16/2022 as regards the mechanism of taxation of income from the disposal of the use of assets, other than those from the lease or from rental for tourist purposes of the rooms located in privately owned dwellings. Thus, starting with the revenue for 2023, the 10% income tax rate is applied to the gross income, representing the taxable income, the flat rate expenses/the deduction of 40% used when setting the annual taxable income being eliminated. Another update refers to the reduction of the limit from which the health contribution is paid for the income obtained from the disposal of the use of assets to six national minimum gross wages, compared to 12 wages, as it was before this year. It is also mandatory to register the lease contracts with the competent fiscal authority reporting to ANAF no later than 30 days after the conclusion/occurrence of its amendment, obligation which had been waived in 2018. Their registration procedure is carried out in accordance with Order of the President of the National Agency for Fiscal Administration No. 2031/2022. In the case of the ongoing lease contracts on the 1st of January 2023, their registration with the competent fiscal authority and the changes occurred shall be made within 90 days from the date on which the obligation of their registration has occurred. The obligations of taxpayers who obtain income from the disposal of the use of assets from the execution of maximum five lease contracts are set by self-taxation within the single return.

Assessing fiscal multipliers in times of crisis: evidence from selected CEE countries

The COVID-19 pandemic proved to be an unprecedented socio-economic crisis in the last decades. More than three years after its outbreak, there is still uncertainty regarding its future evolution. National and international authorities adopted a prompt and synchronized response to limit the adverse effects of the health crisis, in terms of socio-economic damage. Against this background, this paper assesses the efficiency of the measures implemented by fiscal authorities in selected Central and Eastern European countries to ameliorate the economic repercussions of the crisis. The analysis reveals that the impact of expenditure-side measures is stronger than that of revenue-side ones. Additionally, the results of a time-varying parameter model indicate that the fiscal multipliers are higher in times of crisis. In view of the ongoing war in Ukraine, the related geopolitical turmoil and energy crisis, the findings of this paper are especially pertinent, given the need for additional fiscal support.

The Interaction between Policy Mix in Lebanon: Applications of the Nonlinear and Linear ARDL Models

This study investigates the interaction between fiscal and monetary policies in Lebanon over the period 2001 to 2019 by using Autoregressive Distributed Lag (ARDL) and the Nonlinear Autoregressive Distributed Lag (NARDL) model introduced by Pesaran et al. (2001) and Shin et al. (2014) respectively in order to examine simultaneously the short- and long-run symmetric and possible asymmetric interactions between fiscal and monetary tools in Lebanon. The fiscal and monetary rules employed in this study are inspired from Leeper (1991, 2016 and 2018). Based on NARDL and ARDL fiscal and monetary reaction functions, Lebanese fiscal authority acts independently indicating a fiscal dominance. This situation obliged the BDL to neglect its main goal of maintaining price stability in order to support fiscal deficit by creating seigniorage revenue to balance the government accounts which in turns has led to an acceleration of inflation rates even in case of monetary contraction. The fiscal responsiveness to changes in public debt is extremely weak in Lebanon, and even is negative, and this is due to the high levels of public debt (174.3% of GDP in 2019). The empirical results indicate also that while the linear approach provides evidences of the interaction between the fiscal and monetary policies, the nonlinear approach provides more important evidences to determine in which direction this cooperation or conflict occurs between policy mix. Moreover, this paper provides new evidences of the absence of fiscal and monetary discipline rules followed by the fiscal and monetary authorities, which indicates that the policymakers in Lebanon were managing the financial and monetary policies without any specific plan or program and without any future vision or even a framework that allows these policies to be evaluated.

Myopic fiscal objectives and long-Run monetary efficiency

Is the pursuit of myopic fiscal objectives, such as short-run redistribution or public spending, a threat to long-run monetary efficiency? We answer this question in the context of a textbook overlapping generations model where we introduce a sequence of one-period fiscal authorities that can tax endowments and trade money. Each authority is myopic in that it cares only about current agents’ utility and its own consumption, without any concern about the future. Nonetheless, we show that the sequence of fiscally-backed money purchases that maximize the current authority’s objective also selects a unique equilibrium – one in which money is traded at the efficient intertemporal price – as a by-product. In fact, myopic redistribution policies ensure equality in marginal utilities making up for incomplete markets, without interfering with the efficiency of private intertemporal choices. Multiplicity and sub-optimality emerge as fiscal capacity is bounded, inducing authorities to use money trades to generate resources for public consumption.

Inflation dynamics in South Africa: The role of public debt

Orientation: Inflation targeting requires prudent fiscal policy to achieve desired results.Motivation for the study: Since the 2007–2008 financial crisis, fiscal authorities in South Africa have implemented an aggressive fiscal stimulus that has resulted in an acceleration of public debt, accompanied by a sustained government deficit. At the same time, the economy has continued to struggle with achieving significant growth to assist the government with its ever-growing expenditure obligations.Research Purpose: This study set out to investigate the relationship between inflation dynamics and the stance of fiscal policy, with a focus on public debt, in South Africa.Method: This study employs a New Keynesian dynamic stochastic general equilibrium (NKDSGE) model with financial frictions calibrated on South African data.Main Findings: The results of this study showed that when fiscal authorities put a relatively small weight on the control of public debt, inflation significantly increases in response to economic shocks. As a result, the cost channel of monetary policy transmission dominates the demand channel even if the loan rate pass-through is complete.Practical/Managerial Implications: The results of this study highlight the importance of fiscal discipline and its potential adverse effects on monetary authorities’ ability to achieve price stability as set out in their monetary framework.Contribution/Value added: To the best of our knowledge, this is the first study to analyse inflation dynamics and public debt in South Africa using modular experiments in a structural model derived from micro-economic foundations of constrained decision-making.