Fiscal Framework Research Articles

Role of sustainable energy supply and green technology in accelerating the path towards carbon neutrality: Does fiscal development really matter?

Motivation: Fiscal sustainability constitutes a fundamental prerequisite for the long-term stability of public finances and the resilience of economies to external disturbances. Successive global and regional crises, including the global financial crisis, the sovereign debt crisis, the COVID-19 pandemic, as well as the energy and security shocks related to geopolitical developments, have exposed the vulnerability of fiscal systems within the European Union (EU). States characterized by a higher degree of fiscal sustainability were able to mitigate the adverse macroeconomic and social effects of such crises more effectively, whereas fiscally weaker economies experienced prolonged instability and higher adjustment costs. Consequently, the assessment of fiscal sustainability acquires not only theoretical but also practical significance for shaping fiscal governance. While the subject has been widely discussed in the literature, existing studies frequently focus on single indicators or limited periods, which underscores the need for multidimensional and comparative analyses conducted within a longer time horizon. Aim: The principal objective of this article is to identify the key determinants of fiscal sustainability and to evaluate its level across EU Member States in 2014, 2017, 2020, and 2023. By applying an integrated, synthetic measure, the study addresses the identified research gap, offering a comprehensive and temporally consistent framework for the comparative assessment of fiscal sustainability among EU economies. Results: The Synthetic Measure of Fiscal Sustainability (SMFS) was constructed by employing the modified Hellwig method with Mahalanobis distance. The analysis incorporated five diagnostic variables: the public debt-to-GDP ratio, the budget balance-to-GDP ratio, the GDP growth rate, the current account balance, and EMU bond yields. Empirical data were derived from Eurostat. Hierarchical cluster analysis was subsequently applied to classify Member States into homogeneous groups according to their fiscal sustainability levels. The results indicate that Germany maintained the highest level of fiscal sustainability throughout the examined period, followed by the Netherlands and Malta. In contrast, Greece recorded the lowest SMFS values in 2014 and 2017, France in 2020, and Ireland in 2023. Overall, five distinct clusters of countries were identified, ranging from low to high sustainability. The findings demonstrate significant heterogeneity within the EU and underscore the necessity of designing fiscal frameworks that are both country-specific and consistent with the requirements of supranational fiscal governance.

This paper investigates the long-run and short-run effects of natural resource rents, economic growth, foreign direct investment, and inflation on human capital development in Chile and Nigeria. The paper employs the autoregressive distributed lag bounds testing approach, using annual data from 1980 to 2019 sourced primarily from the World Bank’s World Development Indicators and the Federal Reserve Economic Data. Human capital is proxied by the Human Capital Index. The findings reveal striking contrasts between the two countries. In Chile, resource rents and economic growth exert small but positive effects on human capital, consistent with a modest resource-blessing dynamic, while foreign direct investment and inflation are largely insignificant. In Nigeria, resource rents and GDP growth undermine human capital in the long run, confirming a resource-curse pattern, while foreign direct investment emerges as strongly positive in the long run but negative in the short run. Inflation is found to be consistently detrimental in both horizons, with far greater magnitude in Nigeria. Error correction terms confirm cointegration, with Chile exhibiting a faster speed of adjustment compared to Nigeria. The results highlight that the impact of resource rents on human capital is mediated by institutional quality, fiscal frameworks, and macroeconomic stability. Policy implications point to the importance of transparent resource revenue management, economic diversification, inflation control, and the strategic direction of foreign direct investment to ensure that resource wealth supports human capital accumulation.

Institutional design and the operationalization of governance pathways lie at the center as one of the key elements of increasing the performance of local governments, which are the most direct contact of citizens with the state. Efficiency in local governance cannot be based on proper institutionalized structures alone; what is equally important is adaptive regulatory frameworks and innovative mechanisms of governance that would allow municipalities to provide quality and affordable services to the society as well as facilitate participatory processes and accountability. The paper analyses the impact of institutional design whereby states can vary in terms of how centralized or decentralized their municipal system is and the resulting consequences in election governance. This study uses comparative case studies and theoretical views in examining the interaction between the regulatory pathways, fiscal transfer systems, governance innovations, and the effectiveness of local governments. As analyzed, it is clear that clearly defined boundaries lead to greater effectiveness in institutions whereas, blurred or overlapping boundaries lead to poor decision making and results in decreased responsiveness. In a similar fashion, fiscal mechanisms indicate a twofold paradox: conditional transfer enhances accountability but restrains local innovation, and unconditional transfer increases autonomy at the risk of inefficiency; hybrid fiscal frameworks prove a middle way between oversight and local innovation. In addition, participatory budgeting, e-governance systems, and blockchain-based feedback systems have shown to be effective measures in enhancing transparency and trust and in making citizens more satisfied but the digital divide and limitations of capacity inhibit the inclusion of the latter-day innovations. Resilience and adaptive capacity are observed to be important pillars of institutional restoration in resilience and post-conflict contexts as they bring legitimacy to institutions and contribute to their functionality. These findings support the significance of the institutional frameworks with citizen intent that combine autonomy with accountability, regulation versus innovation, and the ability to adapt to the specific challenges. On the whole, the paper has valuable research implications to the body of knowledge related to decentralization and governance by showing that institutional design and governance pathways are not fixed frameworks but living processes by means of which resilience, transparency, and responsiveness in local governments could be constructed.

The rapid accumulation of public debt raises global concern over its implications for financial markets. This study examines the effect of domestic public debt on financial development in Middle East and North Africa (MENA) countries, a region marked by sharp heterogeneity in institutions, debt dynamics, and oil dependence, using annual panel data for 16 countries over the period (2000–2020). Our analysis employs a fractional response model (FRM), which accounts for the bounded nature of the dependent variable, corrects for heteroskedasticity, and incorporates country fixed effects. The findings reveal a significant negative effect of domestic public debt on financial development, consistent with the lazy banks and crowding-out hypotheses. This adverse relationship persists across different income groups and debt percentiles, with modest attenuation at higher debt levels. Oil rents are also found to exert a robust negative effect, highlighting the structural vulnerabilities associated with oil dependence. These results emphasize the importance of debt management, fiscal frameworks that account for commodity cycles, and policies to reduce the sovereign–bank nexus in fostering sustainable financial development in the region.

Environmental pollution and green intergovernmental fiscal relations: Fiscal decentralization for sustainable governance.

Purpose: This paper explores the role of Islamic finance in mitigating domestic debt in developing countries. As traditional interest-based borrowing systems continue to burden public finances, there is a growing need to consider ethical and sustainable alternatives rooted in Islamic financial principles. Background: Islamic finance offers a Shariah-compliant framework that emphasizes asset-backed transactions, risk-sharing, and the prohibition of interest (riba). These features position it as a promising solution for reducing reliance on conventional debt mechanisms, particularly through instruments such as sukuk. Aims and Methodology: The study aims to assess how Islamic finance can contribute to more sustainable debt management. Using a dataset covering 30 countries between 1980 and 2023, it applies descriptive and correlational analysis to examine the relationship between GDP, Gross Fixed Capital Formation (GFCF), and Central Government Debt (CGD). The analysis focuses on evaluating the potential of Islamic financial mechanisms to foster economic stability without accumulating interest-bearing liabilities. Findings and Contribution: The findings suggest that while the relationship between Islamic finance proxies and GDP is not strongly linear, there are clear trends indicating that sukuk and other Shariah-compliant instruments contribute to more stable fiscal frameworks in countries where Islamic finance is integrated. This paper adds to the discourse by demonstrating that Islamic finance is not only theoretically sound but also practically relevant in shaping national debt strategies.

ABSTRACTThe appointment of the new European Commission for the period 2024–2029 is a critical opportunity to establish a governance model that can address the Union's evolving challenges, ranging from fiscal sustainability and digital transformation to climate imperatives and democratic legitimacy. These notes reflect on the institutional levers available to enhance transparency, accountability, sustainability and citizen engagement, building on recent reforms, EU‐wide initiatives and the experiences of member states. Rather than proposing new legal instruments or empirical models, the paper sets out a strategic roadmap for embedding modern governance principles within the operational fabric of EU administrations. It explores how adaptive fiscal frameworks, standardised public sector accounting, digital innovation, anti‐corruption tools and participatory mechanisms can be scaled up and institutionalised within existing structures. The analysis contends that meaningful reform requires coherence between financial management, service delivery, environmental performance, and democratic participation. Aligning these areas within a flexible, inclusive and resilient governance architecture would enable the EU to strengthen public trust and ensure policy effectiveness in an increasingly complex global environment.

This study explored the conceptual integration of Maqashid Shariah values into Indonesia’s national budget policy (APBN). Although Indonesia has initiated various Islamic economic instruments such as zakat, waqf, and sukuk, the national fiscal framework still lacks systemic alignment with Islamic ethical values. Using a qualitative case study approach, this research investigates the normative gaps and operational challenges in embedding Maqashid principles into the budgeting process. Data were collected through semi-structured interviews, document analysis, and non-participatory observations involving key stakeholders in fiscal policy formulation. The results reveal a significant disconnection between technocratic budget practices and ethical-spiritual objectives rooted in Islam. The absence of measurable indicators for Maqashid-oriented outcomes has limited the realization of public welfare. This study proposes a conceptual framework the Maqashid Syariah Fiscal Framework which incorporates ethical indicators and evaluative mechanisms into fiscal governance. The findings contribute to the epistemological development of Islamic public finance and offer practical policy implications for enhancing justice, welfare, and accountability in state budget practices.

Italy is the country with the highest concentration of assets of historical and artistic interest. Based on the definition of cultural heritage considered, it is estimated that Italy holds between 60% and 75% of all artistic assets existing across all continents. In Italy, the ownership of assets of historical and artistic interest does not solely entail advantages and pleasures. Indeed, holders of such assets are subject to specific obligations, including, but not limited to, preservation, maintenance, prohibition of demolition, the State's right of pre-emption in the event of sale, and the obligation to make the assets accessible to the public. In compensation for these obligations, the tax legislator has provided favorable treatment for both direct and indirect taxation. In recent years, however, the traditional tax benefits granted to private owners of historical residences have been progressively reduced, while incentives for assets owned by public entities or non-profit institutions have increased. An emblematic example of this trend is the Art Bonus, which encourages private participation in the preservation and restoration of public cultural assets. This legislative evolution appears to reflect a certain distrust toward private ownership of assets of historical and cultural interest, often considered an "undeserved" form of wealth. The objective of this scientific contribution is to illustrate the fiscal treatment reserved in Italy for private historical residences, highlighting its critical aspects and potential reform perspectives. The current fiscal framework underscores the need for a change in tax legislation to better balance public and private interests, thereby more effectively promoting and enhancing all assets of historical and artistic interest, while ensuring greater compliance with the obligations of conservation and protection of cultural heritage in the interest of the entire community.

The study investigates the macroeconomic effects of Brent oil price dynamics on the economies of ten major oil-producing countries, representing over 65% of global crude production across four economic regions, namely, Sub-Saharan Africa, MENA, OECD, and BRICS. The study focuses on the transmission of Brent oil price shocks through macroeconomic variables - real GDP, fiscal deficit, oil rent, external debt, and trade balance from 1981 to 2021. Using a Panel Vector Autoregressive (PVAR) model, the study effectively captures the dynamic relationships between these regions while tackling issues like endogeneity and unobserved heterogeneity. The findings reveal region-specific channels through which oil price shocks are transmitted: fiscal deficits in Sub-Saharan Africa, trade balances in MENA, real GDP in OECD countries, and external debt in BRICS. Impulse response functions and variance decomposition reveal varying sensitivities to oil price changes across these economies. Focusing on Nigeria, the study suggests robust fiscal rules and a sovereign wealth fund management strategy to boost fiscal stability and long-term sustainability. This research contributes to the policy discussions on managing oil wealth and addressing economic vulnerabilities in resource-dependent countries, emphasizing the importance of contextualized fiscal frameworks to mitigate the negative impacts of oil price fluctuations.

Ireland’s reliance on corporate income tax (CIT) receipts from multinational enterprises, concentrated in a small number of companies, presents significant risks to the budget. The uncertain nature of this revenue calls for a robust fiscal framework to safeguard public finances. This paper proposes strengthening the national fiscal framework by establishing a prudent medium-term debt anchor and an expenditure rule to guide the annual budget process. We first establish a prudent debt anchor for Ireland by calibrating CIT shocks and simulating possible debt trajectories. Second, we propose an operational rule based on multi-year expenditure ceilings. The ceilings are calibrated such as to stabilize debt at the anchor level while accounting for the economy’s cyclical position. Although tailored to Ireland, the methodology employed has broader applicability for designing effective fiscal rules.

Ireland’s reliance on corporate income tax (CIT) receipts from multinational enterprises (MNEs), concentrated in a small number of companies, presents significant risks to the budget. This paper proposes to strengthen the national fiscal framework by establishing a prudent medium-term debt anchor and an expenditure rule to guide the annual budget process. We first establish a prudent debt anchor for Ireland by calibrating CIT shocks and simulating possible debt trajectories. Second, we propose an operational rule based on multi-year expenditure ceilings that stabilizes debt at the anchor level while accounting for the economy’s cyclical positions.

Zambia’s mining sector is crucial to its economy, significantly contributing to national revenue and foreign direct investment (FDI). However, the country has struggled to balance mineral royalty tax (MRT) revenue generation with attracting and retaining FDI. This study develops the Taxation and Investment Reconciliation Theory (TIRT) as a strategic framework for balancing taxation policies and investment incentives in resource-rich nations. Using a mixed-methods approach, integrating econometric analysis and qualitative insights from policymakers, investors, and mining firms, the research examines the impact of MRT regimes on FDI inflows in Zambia. The study employs a convergent parallel design and applies an Autoregressive Distributed Lag (ARDL) model to time series data to analyse how changes in royalty tax structures influence investment decisions and government revenue. Additionally, it evaluates policy inconsistencies and investor perceptions of Zambia’s fiscal framework. A key outcome is the TIRT model, which incorporates international best practices and empirical data from other resource-rich economies to establish a sustainable taxation-investment balance. Findings highlight that predictable, stable, and flexible tax policies are essential for aligning government revenue objectives with investor confidence. The study emphasises the importance of political stability and stakeholder interests in achieving a sustainable mining sector. It concludes by recommending a policy framework that aligns Zambia’s MRT with long-term FDI growth, ensuring a robust and sustainable mining sector. This research contributes to the discourse on mineral taxation in developing economies, offering a practical model for optimizing both revenue generation and foreign investment.

Natural disasters pose a significant threat not only to human life and infrastructure but also to the fiscal stability of local governments. This paper investigates the financial implications of natural disasters on municipalities, with a focus on emergency spending, infrastructure rehabilitation costs, revenue shortfalls, and long-term economic recovery. A case study of a mid-sized Greek municipality affected by a major flood event in 2023 is presented. The study employs both qualitative and quantitative methodologies, using budget reports, financial statements, and stakeholder interviews. Results highlight the pressing need for disaster risk reduction (DRR) investments and more resilient fiscal frameworks at the municipal level.

Papua New Guinea’s public debt has increased significantly in recent years, leading to a high risk of debt distress and exposing significant gaps in the existing fiscal setting. This paper proposes to strengthen the authorities’ fiscal framework by introducing a clear public debt anchor and a primary balance rule. Specifically, we consider setting the medium-term debt anchor at between 30 and 40 percent of GDP to ensure that the debt limit of 60 percent is not breached under most scenarios, and using the primary balance as an operational policy instrument to facilitate the convergence of public debt to its anchor.

This document outlines the main achievements of the Technical Assistance Project led by the IMF’s Institute for Capacity Development in the Dominican Republic from January 2023 to September 2024. The project supported capacity building in macroeconomic forecasting and analysis within the Ministry of Finance (MoF) and facilitated the development and implementation of a macroeconomic projections tool grounded on Financial Programming principles. Significant gains have been observed in the MoF team’s ability to independently operate this tool, and by the end of the project, early signs of its incorporation into the policy process are encouraging. Additionally, the document outlines recommendations to foster its use for policymakers which were discussed with the authorities during the end-project mission. Overall, the project outcomes are expected to positively contribute to the quality of the medium-term macroeconomic and fiscal frameworks.

Abstract Fiscal risk management is a key aspect of good public financial management, especially in developing countries such as Albania. This paper presents the principal sources of fiscal risks in Albania, with particular reference to state-owned enterprises (SOEs), public-private partnerships (PPPs), and contingent liabilities arising from natural disasters. Drawing on recent fiscal reports, IMF assessments, and national budgetary documents, the paper discusses the transparency, evaluation, and mitigation of fiscal risks in the Albanian context. Although considerable progress has been made in fiscal reporting and risk disclosure, crucial gaps remain in monitoring and mitigating quasi-fiscal liabilities and climate-related risks. Comparative perspectives with regional peers are included to highlight regional trends and best practices. The findings show that while Albania has made progress, major challenges remain, particularly in integrating climate and disaster risks into fiscal frameworks and in improving the governance of SOEs and PPPs. Our examination suggests that a comprehensive and transparent fiscal risk management framework is needed to support Albania's fiscal sustainability and resilience to potential shocks. The paper concludes with practical recommendations directed to policymakers and fiscal authorities for the construction of a more robust and forward-looking fiscal risk framework. This article addresses the question: “How resilient is Albania’s fiscal framework to key economic and structural risks?”, using mixed-methods combining scenario analysis, comparative benchmarking, and policy evaluation. Results highlight Albania’s progress in fiscal transparency but point to gaps in SOE governance, PPP oversight, and disaster risk financing. This article is among the first to examine Albania's fiscal risks systematically by combining scenario analysis, cross-country benchmarking, and stress testing. By placing Albania's experience in regional and international contexts, the study contributes new empirical evidence on fiscal risk management in emerging economies.

Romania’s medium-term fiscal framework calls for the fiscal deficit to decline gradually from about 8 percent of GDP in 2024 to 7 percent in 2025 and 3 percent (or less) by 2031. With limited scope for expenditure consolidation ‒ given the low expenditure-to-GDP ratio ‒ revenue mobilization is imperative. IMF technical assistance proposes a tax reform package aimed at mobilizing revenues, while improving work incentives, remaining attractive to capital investments, and closing loopholes for abusive tax planning. The key recommendations shift the fiscal burden away from labor taxation (including social insurance contributions) toward taxes on consumption and, to a lesser extent, on capital. The detailed recommendations, if fully implemented, can generate revenues of at least 1.2 percent of GDP in 2025.

Does the European fiscal framework play a pivotal role in shaping fiscal cyclicality of the revenue side of the budget balance?