Fiscal Gap Research Articles

Drivers of local government borrowing in China: Fiscal hunger and competition game under asymmetric decentralization

This paper contributes two mechanisms through which asymmetric fiscal decentralization drives local government borrowing: ‘fiscal hunger’ (borrowing to address budgetary fiscal gaps, leverage land resources, and pay off existing loans) and ‘competition game’ (borrowing to compete for bond issuance and state funds). Analyzing a dataset of 290 Chinese cities from 2006 to 2015, we find local government borrowing is driven by both fiscal hunger and inter-city competition. Borrowing is not confined to the growth-oriented purpose. Our Geographically Weighted Panel Regression uncovers the spatial patterns of two borrowing mechanisms, in which borrowing in less-developed regions is predominantly driven by fiscal hunger, while developed coastal regions actively engage in inter-city competition through borrowing. These dynamics may aggravate fiscal disparities among Chinese cities.

The impact of local government bonds on land-leasing behaviours and the economic consequences: evidence from the self-issuance reforms in China

ABSTRACT Under the 1995 Budget Law, land finance, rather than local government bonds (LGBs), played a critical role in bridging fiscal gaps for Chinese local governments. This paper examines the impact of the self-issuance (SI) reform of LGBs from 2011 on land leasing using county-level data from 2000 to 2019 combined with land parcel data and business registration databases of China. Findings reveal that, firstly, SI reforms initially reduce land leasing but increase it by 24.86% three years later, with a preference for commercial and residential land. Reforms also raise commercial and residential land leasing prices by 14.22% and do not compel lower prices for industrial land. Secondly, based on repayment obligations, the self-issuance and central-government-repayment (SICGR) mode alleviates fiscal pressure, favouring commercial and residential land leasing, while the self-issuance and self-repayment (SISR) pattern enhances fiscal sustainability and leads to more industrial land leasing. Thirdly, mechanism analysis suggests that SI reforms increase debt burden and decrease fiscal self-sufficiency, primarily through land tender, auction, and listing mechanisms, resulting in unbalanced regional development. This research highlights the need for sustainable development patterns under the New Budget Law of 2015, balancing fiscal revenues, the land market, and local government debts.

GOVERNMENT INVESTMENT IN NATURAL CAPITAL BOOSTS ECONOMIC GROWTH: EVIDENCE FROM CHINA’S TRANSFER PAYMENT POLICY FOR NATIONAL KEY ECOLOGICAL FUNCTIONAL AREAS

This paper studies the impact of the transfer payment policy for national key ecological functional areas (TPPNKEFA) on economic growth. As the most representative and extensive vertical ecological compensation policy in China, the TPPNKEFA plays an important role in protecting and restoring natural capital. Using the county-level TPPNKEFA data disclosed according to the application, we constructed a multi-stage DID model to identify the economic growth effect of TPPNKEFA. The results show that TPPNKEFA effectively improves the level of county economic development, which is more prominent in the counties located in the central and western regions, water conservation functional areas, low economic development level, large fiscal gap, and the counties where TPPNKEFA has been implemented for a long time. A mechanism analysis shows that industrial ecologization and ecological industrialization are important paths. The extension analysis shows that the original intention of TPPNKEFA to promote the restoration of natural capital and the improvement of people’s livelihoods has been well implemented. This study provides important evidence to support efforts to protect and restore natural capital, highlighting the need for governments to invest in natural capital and thus facilitate the transition to a low-carbon economy.

Emigration and fiscal gap in population-exporting region.

This paper analyzes how emigration impacts fiscal gap of population-exporting region in the long term. We construct a general equilibrium model of emigration and fiscal gap and make empirical verification using two-step system GMM model. Among the major lessons from this work, five general and striking results are worth highlighting: (1) the economic losses of emigration are the immediate cause of widening the fiscal gap. (2) in the short and long term, emigration can expand the fiscal revenue gap through the superimposed effect of tax rate and tax base. (3) the gap in fiscal expenditure is widened by the outflow of people in the short term. However, local governments would change the strategy to keep the spending gap from widening in the long run. (4) a positive impact of emigration on the fiscal gap. the more severe population emigration, the larger the fiscal gap. (5) when the trend of emigration becomes irreversible, the subsequent efforts of local governments to expand fiscal expenditure for attraction population would not only fail to revive the regional economy, but aggravate the expansion of fiscal gap. The contribution of research is twofold. On the one hand, it fills the theoretical gap between emigration and fiscal gap because previous studies have paid little attention to the fiscal problems of local government of population outflow. On the other hand, the selection of Northeast China that has been subject to long-term out-of-population migration is good evidence to verify this theory, which is tested very well using the 2S-GMM model. The comprehensive discussion on the relationship between emigration and fiscal gap is helpful to guide those continuous population-exporting regions that are facing a huge fiscal gap how to solve the fiscal gap and unsustainability from the perspective of fiscal revenue and expenditure.

The tax gap in Morocco: an econometric analysis of sociodemographic and fiscal factors’ impact

This study aims to apprehend the impact of non-economic variables on the fiscal gap in Morocco, namely the sociodemographic and the fiscal factors (regulatory changes). The analysis is carried over the period 1980-2018 and includes economic control variables. To do so, we estimate a log-linear model using the modified least squares method. The results shed light on the effect of socio-demographic variables on the evolution of the tax gap in Morocco: age seems to reflect the effect of experience in circumventing taxation. Gender and education do not seem to have any effect on the tax gap in Morocco. The impact of economic control variables seems clear: incomes/profits generated in the trade sector seem to be subject to tax evasion/avoidance and consequently increase the tax gap in Morocco, compared to incomes that are generated by other sectors. Fiscal factors have been introduced in our estimations via dummy variables. They allowed us to conclude that economic agents are more sensitive to indirect fiscal measures and regulations, rather than to direct measures aiming at reducing the tax gap.

Analysis of Fiscal Gaps and Regional Transfers Between Regions in Indonesia

This research aims to analyze fiscal gaps and regional transfers between regions in Indonesia within the framework of the fiscal decentralization policy implemented by the Indonesian government. The research method uses a qualitative descriptive research type using literature studies based on secondary data. The results of the research show that the fiscal gap and regional transfers between regions in Indonesia are a form of the failure of transfer funds between regions in Indonesia to significantly reduce economic inequality and public services between regions, which are also thought to be influenced by factors in regional financial management and resource allocation that are not yet efficient and effective. Even though transfer funds have been distributed to areas outside Java-Bali, if the management is not efficient and effective, the limited amount of funds will certainly not be able to catch up with the region. This condition is influenced by the implementation of centralized policies in Indonesia, which have proven to cause high regional dependence on the center. This dependence can be seen from the large contribution from the center, which far exceeds revenues from PAD. As a result of the centralized budget policy pattern at the center, high vertical fiscal inequality occurs.

Economic Growth Model with Regional Expenditure as a Moderation Variable: Scale in Berau Regency

The motivation of this paper aims to investigate the relationship between local taxes, DAU, and DBH on the economic growth of Berau Regency. Apart from that, the paper also identifies the relationship between regional taxes, DAU, and DBH on economic growth which interacts with regional expenditure in Berau Regency. Government revenue is an important instrument for regions to foster economic growth. At the same time, government spending is used as a fiscal support to review the degree of budget absorption. With surplus revenue performance, it will generate financing which also plays a vital function in boosting economic growth. Secondary data for 2013–2022 was collected from government budget documents. Then, the data is tabulated using a time-series linear regression model with moderating variables. The statistical output finds that regional taxes and DBH have a negative effect on economic growth. However, DAU actually has a positive effect on economic growth. Uniquely, the interaction between regional taxes and DAU which is moderated by regional spending has a positive influence on economic growth. Then, regional spending plays a negative role in the relationship between DBH and economic growth. Future implications of considering practical regulations that do not only depend on income from the DAU side, but must focus on the existence of regional taxes in Berau Regency. By optimizing regional taxes, it also allows for a large fiscal gap in terms of regional spending. Financing the development of Berau Regency requires adequate expenditure allocation.

The Impact of the flypaper effect on the Province of Bangka Belitung in the Context of Spatial Relationships

Local governments must ensure proper financial management by carefully planning the allocation of regional funds (such as DAU/DAK/DBH) and expenditures (BELANJA), as well as maximizing effective and efficient income (PAD). However, the funds received by the regions from the central government are being used in an uneven manner, referred to as the flypaper effect. Despite this, the local government's expenditures have failed to close the fiscal gap and the amount of regional funds being used is greater than the amount of regional income. This study trains to examine the presence of the flypaper effect in Bangka Belitung and the impact of spatial elements on it. Utilizing data from 2006 to 2020 and employing a modified row normalized queen contiguity modified matrix with direct transportation connection, the research objectives were deployed. The study utilized the Spatial Durbin Model (SDM) to analyze the data. The findings indicated the presence of the flypaper effect in the Bangka Belitung Islands with spatial dependencies between 2006 and 2020. And only the Decentralized Allocation of Funds (DAU) was affected by the flypaper effect when there was spatial interdependence in Bangka Belitung. The influence of DAU on regional expenditure (BELANJA) was stronger than its effect on regional income (PAD). Increasing BELANJA in one jurisdiction would lead to an increase of 37 percent in other regions. The spillover effect of the decomposed lump-sum grants was related only to DAU in the context of spatial relationship. Local expenditure in Bangka Belitung was dependent on other locals.

Fiscal Policy Analysis Bekasi District 2021 Fiscal Year

This study aims to analyze the fiscal policy implemented by the Bekasi Regency local government. The goal is to improve the financial structure by increasing regional financial capacity, which ultimately creates a positive fiscal gap as an indicator of policy success. This study used a qualitative literature review approach, where data was gathered through observations, literature study, and the examination of various secondary sources. The collected data was then analyzed using a descriptive model, which involves describing the data as it is without any alterations or modifications. The findings revealed that the Bekasi Regency Government has put in place various measures to achieve a positive fiscal gap. These include Extensification, which involves maximizing Regional Original Revenue (PAD), and Intensification, where the Tax Object Sale Value (NJOP) is adjusted to optimize the revenue from Fees for the Acquisition of Rights on Land/Building (BPHTB).

Unraveling the Dynamics of Budget Deficit Determinants in Afghanistan

Across various nations, including Afghanistan, the government plays a pivotal role in coordinating a multitude of national activities, spanning critical sectors like infrastructure, education, and healthcare. The responsibility for executing extensive construction projects and providing essential medical and educational services rests squarely on the shoulders of the government. Meeting these obligations demands a substantial budget allocation. However, challenges can emerge, potentially leading to a budget deficit. Such shortfalls might arise due to a failure to achieve projected revenues, escalated expenditures, or a combination of both. This article endeavors to deeply examine the intricate interplay of diverse factors that contribute to such fiscal gaps, with a specific focus on Afghanistan. The central inquiry revolves around comprehending and delineating the complex relationships among key variables, notably subsidies, inflation rates, tax revenues, income from natural resources, government expenditures, economic growth trajectories, instances of conflict, electoral processes, unemployment rates, and demographic trends. The rationale for singling out and scrutinizing these particular variables draws from a fusion of economic theories, including the Keynesian framework, optimal finance theory, random loan theory, and general choice theory. In this current study, the concept of a budget deficit assumes the role of the dependent variable within the analytical model. It is operationally defined as the disparity between the government's overall expenditures and its generated revenues. Through a comprehensive exploration of the multifaceted connections among the aforementioned variables, this research aims to provide a deeper understanding of the intricate dynamics that influence the equilibrium of budgets and the fiscal stability within government operations. To assess the impact of these factors, the period from 2014 to 2023 underwent rigorous statistical analysis. Utilizing the ordinary least squares method, we aimed to scrutinize how these variables interacted with the budget deficit. The findings from this comprehensive study unveil a noteworthy pattern: revenues from natural resources and taxes, in conjunction with economic growth, exhibit an adverse correlation with the budget deficit. Conversely, government subsidies and general expenditures display a tendency to elevate the budget deficit within the government's fiscal framework.

Stimulative monetary policy of Russia and its instruments in the context of the sanctions war

Aim. To develop guidelines and instruments of the stimulating monetary policy of the Russian Federation (RF), contributing in the conditions of the sanctions imposed to increase the rate of economic growth and its efficiency.Tasks. Analysis of the state of the Russian economy, the main directions of its further de­velopment and regulation mechanisms; study of the financial potential of the Russian econ­omy (savings and investments) in conditions of closing access to financial markets and to in­ternational payment and settlement systems of developed countries; study of the ongoing monetary policy of Russia, its main components — monetary and fiscal policy, their impact on economic growth; analysis of modern monetary theory, existing views of Russian and for­eign economistsMethods. The authors applied the method of analysis in the process of studying the practice of monetary and fiscal regulation in Russia and abroad, carried out economic analysis. The ar­ticle reflects the research data of Russian and foreign specialists. A systematic approach, which provides for the interdependence of monetary, fiscal policy and macroeconomic regulation of the economy, investment and innovation development, was used.Results. The need to combine the ongoing restraining anti-inflationary monetary policy with a soft budget policy, providing incentives for modernization of enterprises, domestic demand and supply at the expense of targeted budget financing within the adopted state programs of socio-economic, structural and innovative development with reasonable limits of budget deficit and public debt has been established.Conclusions. In a stagflationary environment, it seems appropriate to pursue a strict anti- inflationary monetary policy of the Bank of Russia, restraining credit issuance and stimulat­ing the growth of savings. Closed access of RF residents to financial markets of developed countries with excessive monetary resources, limited opportunities for growth of domestic savings and savings, insufficient inflow of foreign investments due to high risks of Russian residents to foreign markets increases the importance of targeted budget financing in the context of state programs to expand and modernize production, structural reforms and in­novation development. To justify the limits of the deficit of state and municipal budgets and debts, it is necessary to apply the indicators of fiscal gaps. As the key rate of the Bank of Russia decreases, the financial market stabilizes, and the targets of targeted programs are met, budget financing is replaced by private investment, bank and commercial lending.

Last mile in anti-poverty drive: Impact of cadres’ appraisals on growth and poverty reduction

Developing countries need deft strategies to implement policies such as poverty alleviation especially when central and local governments face a misalignment of objectives. We explore this issue with China’s anti-poverty drive under President Xi Jinping using county-level data from 2012 to 2018 and a fixed effects model to investigate the impacts of a switch in cadres’ performance appraisal to focus on eradicating poverty instead of economic growth. Our study shows that the appraisal change slows GDP growth but lifts rural income among the poorest as resources are reallocated to projects that improve their livelihoods. Heterogeneity analyses further indicate that the GDP impact from the appraisal shift is mainly ascribed to counties that entirely remove GDP-related indicators, and not so much to those that merely reduce the weightage. Furthermore, using data such as fiscal gap and sectoral added value, we explore mechanisms through which the performance appraisal shift affects GDP growth. The experience of China shows that political incentives in a centralized system can facilitate the implementation of equity-targeted public policies, but this efficiency is not cost-free as economic growth might be compromised. Therefore, our study serves as a reference for other developing countries that wish to explore the pathway of applying public governance in poverty alleviation.

Governance Challenge and Tiered State Assistance: The Fiscal Gap in the Chinese Ethnic Tibetan Autonomous Areas

ABSTRACT Contrary to the arguments in most of the literature, the central government of China applies diversified rather than homogenous measures to govern its Ethnic Tibetan Autonomous Areas (ETAA). Applying the analytical framework of ‘inner and outer peripheries’, this research argues that the central government has favoured the Tibetan Autonomous Region (TAR), particularly in state fiscal assistance, over the other ETAAs, due to its unique governance challenge. This research analyses the central government’s fiscal assistance to the ETAAs from 2010 to 2019 and reveals an increasing fiscal gap between them. Not only has the TAR been consistently in the lead but fiscal inequality has also grown among ETAAs in the provinces of Sichuan, Yunnan, Qinghai and Gansu. Fieldwork in the TAR, Yunnan, Gansu and Sichuan reveals that the fiscal gap, combined with varied local circumstances, has created multifaceted social and economic unevenness in the ETAAs.

Redistribution and risk-sharing effects of intergovernmental transfers: an empirical analysis based on Italian municipal data

ABSTRACT This paper studies the redistributive and risk-sharing effects of intergovernmental grants at the municipal level, taking advantage of the 2015 reform of the Italian municipal equalization system. The reform introduces formula grants to equalize the fiscal gap only in municipalities in standard regions, but not in municipalities located in special autonomous regions. We can, therefore, use difference-in-differences estimators to identify the causal relationship between formula grants and local gross domestic product thanks to this asymmetric pattern. The final results show that formula grants lead to greater redistribution than pre-reform transfers. On the contrary, new transfers have low risk-sharing effects due to the lag in data available to evaluate fiscal capacity and expenditure needs.

Debt and Economic Growth: The Case of Indonesia

Debt is an intriguing state financing to be studied and analyzed because debt can have positive or negative impacts. Sources of debt can be from the issuance of domestically-sold bonds or foreign investment. Indonesia uses debt instruments to address the fiscal gap and increase capital for economic development. This study aims to analyze the impact of debt on Indonesia’s economic growth and investment during the 1970-2018 period, using the Autoregressive Distributed Lag (ARDL) method. The study found that debt had a negative effect on GDP in the short and long run. Meanwhile, it did not affect investment in the short run but had a negative effect in the long run. The study model also had good stability as a result of Cusum and Cusum of Squares testing. Thus, appropriate debt management policies are needed to support economic growth.

Relationship of Macroeconomic Policies with Stunting: The Role of The Health Budget, Applying Fiscal Autonomy and Reducing Poverty

The prevalence of stunting over the past 10 years indicates no significant changes and this indicates that the stunting problem needs to be addressed immediately. The indirect cause of the problem of stunting is influenced by various factors including the health budget, fiscal autonomy, and the level of poverty. This study used a regression model using panel data or pooled data (pooling cross section-time series regression). The cross-section unit was 100 districts and cities in 33 provinces in Indonesia and the year of analysis in 2019. The analysis showed that, partially, the level of poverty influences the incidence of stunting, the health budget influences the incidence of stunting, and fiscal autonomy influences the incidence of stunting. Simultaneously the health budget, fiscal autonomy, and poverty level influence stunting. Our study recommends that the Indonesian government increase health budget, reduce the inter-regional fiscal gap, improve the social welfare of the Indonesian people, and reduce revenue inequality.
 Keywords: stunting, fiscal budget, health, poverty, macroeconomic.

The impact of local government fiscal gaps on public-private partnerships: government demand and private sector risk aversion

While government fiscal gap is traditionally considered a demand factor for the use of public-private partnerships (PPPs) to deliver public services, a high level of fiscal gap may signal elevated financial risks to private partners and deter them from entering into PPP agreements. A causal mediation analytic framework is used to delineate the two distinct causal pathways. We develop a conceptual model and test derived hypotheses with data of Chinese prefecture-level cities during 2015–2017. The findings suggest that government fiscal gap has a positive impact on PPP adoption, through the mediating role of the debt position. The fiscal gap, as a risk factor, is negatively associated with PPP participation. Risk aversion of the private sector manifests more conspicuously as smaller PPP investment amounts than as a lower likelihood of PPP participation. The adverse effects of the fiscal gap associated with financial risks may entirely offset any positive impact.

Analysis of the Role of the Regional Inspectorate in the Budget Management Review on the Implementation of the Deli Serdang Regency APBD

Regional autonomy is a breath of fresh air for the region, because it not only gets greater authority but also allocates a larger budget. The source of regional expenditure comes from regional original income from transfer of funds, regional original income and other legal sources. Most regional income donations come from balancing funds with a trend that continues to shrink. The research procedure used is a qualitative research procedure. The method of collecting information used is observation and interviews. The results of the research obtained in an effort to improve the welfare of citizens, regional governments are faced with the need for shopping areas which continues to increase while the original source of income for the region is limited. If the government is not able to maximize income outside the balancing fund, it can enlarge the fiscal gap that continues to be large. This is in line with the role of the inspectorate in carrying out a budget review for the implementation of the APBD in Deli Serdang Regency.

Local Goverment Fiscal Risk Monitoring: Case Study In Bogor and Merauke Districts

Some problems often faced by local governments in financing development are the gaps between regional needs that are not balanced with the fiscal capacity of the region so that a fiscal gap arises. Efforts are needed to carry out risk management through fiscal risks monitoring. This study was aimed to analyze and evaluate indicators of risks in regions that can affect local goverment fiscal. This study used various sub-indicators derived from five fiscal risk indicators, namely economic, financial, institutional, social and environmental indicators. Of the several indicators, the variables that pose a risk in Bogor District are water connection problem from water company (PDAM) that are still low (social indicators), budget allocation for the environment and unemployment issue, while in Merauke District, some problem that need to be considered are Infrastructure expenditure (economic indicators), local own-source revenue (PAD), fluctuated unemployment issue (economic indicators), regional independence ratios (financial indicators), social indicators particularly for water connection problems and budget allocation for the living environment.

Fiscal sustainability vs tax gap – Evidence from Poland

AbstractThe main goals of the article are to investigate the level of fiscal unsustainability in Poland and estimate the tax gap necessary to stabilize the size of the public debt and to follow a path to fiscal sustainability. It hypothesizes that by closing the tax gaps for value-added tax (VAT) and personal income tax (PIT), Poland can cover most of its current fiscal needs and stabilize the country’s fiscal situation. We estimated a modified version of the equation describing Ponzi games, calculated the primary gap indicator, and conducted cointegration tests for ex-post data on public expenditures and revenues to investigate the actual level of fiscal unsustainability. The research period covers yearly observations between 2003 and 2017. Empirical evidence confirmed our research hypothesis. We found out that closing the tax gap could change the situation dramatically. If the public authorities were able to collect the VAT and PIT that currently go uncollected, Poland could easily embark on the path towards fiscal sustainability.