Fiscal Gap Research Articles

Fiscal Analysis Based on the Implementation of Regional Development in Badung Regency, Bali in 2021

The purpose of this study was to analyze the effect of Covid-19 on the Regional Budget of Badung Regency in 2021 in terms of the aspect of the resulting fiscal gap. This study was designed using a quantitative approach and validated by a qualitative approach. Quantitative data was obtained from budget documents before and after the Covid-19 outbreak and analyzed using the fiscal gap formula. Qualitative data were analyzed by sorting and selecting data (reduce), presenting data (display), and concluding data (conclusion: drawing/verifying). These three analytical techniques are carried out at each stage of the research, both at the preparation stage, the implementation stage in the field, and after the stage in the field. The results of the study found that the weighted value of the population index was 0.344 GDP/capita 0.324 human development 0.267 construction cost 0.247 and area 0.03. Based on the results of these studies, it is recommended to the Badung Regency Government, so that in making development policies pay attention to the value of the index weights that affect the general allocation fund in designing the regional revenue and expenditure budget.

Mexico needs a fiscal twist: Response to Covid-19 and beyond

Mexico's fiscal response to the pandemic has been modest compared to its peers, reflecting the authorities' desire to not issue new debt for spending. This approach, however, resulted in a more severe recession in 2020 and a weaker economic recovery, notwithstanding spillovers from the United States. Balancing the need for stronger near-term fiscal support for the people and the recovery against medium-term discipline, this paper lays out an alternative strategy. We show that credibly announcing a pro-growth and inclusive medium-term fiscal reform upfront—including increased tax capacity, higher public investment and strengthened social safety nets—would open space for larger short-term support and close medium-term fiscal gaps. Model simulations suggest that this package would boost output, limit lasting economic damage from the pandemic, and put debt trajectory on a declining path in the medium term as tax reforms pay off and risk premia decline.

Efficiency Versus Insurance: Capital Income Taxation and Privatizing Social Security

We study the interactions between capital income tax and social security privatization in the context of rising longevity. In an economy with idiosyncratic income shocks, redistributive defined benefit social security provides some insurance against income uncertainty. This insurance comes at the expense of efficiency loss due to labor supply distortions. The existing view in the literature states that reducing this distortion by introducing (partially funded) defined contribution social security would reduce welfare because the loss of insurance and the transitory fiscal gap dominate the efficiency gains. However, prior research financed the transitory costs of the reform by taxing consumption. We show that in the context of longevity, capital income taxation provides a superior alternative: welfare gains are sufficient to outweigh the loss of insurance and transitory fiscal gap. We provide explanations for a mechanism behind this result and we reconcile our results with the earlier literature.

China’s Local Government Debt: The Grand Bargain

China’s rapidly growing local government debt problem has long been recognized by foreign observers as a risk, but inside China, only recently was this problem called out as alarming. Why has local government debt been allowed to grow with little direct intervention from central authorities? We argue that it has much to do with a “grand bargain” between the central government and localities during the 1994 fiscal recentralization reform. While much scholarly attention has been paid to the consequences of the 1994 reform that left localities with a tremendous fiscal gap, our findings show that Beijing in fact gave localities the green light to create new backdoor financing institutions that counteracted the impact of fiscal recentralization. In essence, these institutions were the quid pro quo offered to localities to sustain their incentive for local state-led growth after 1994. The bargain worked, and growth continued. The drawback, however, was that China’s economic growth has been accompanied by the accumulation of local government debt with little transparency and central control. When the global financial crisis slowed growth, and local deficits and debts spiked, Beijing began to shut down backdoor financing and opened front-door options that were transparent and under the control of national authorities—but with limited success. In the wake of COVID-19, the question is whether the pendulum will swing back toward more tolerance of local debt for the sake of economic growth.

Trends of expenditure on Immunization in Pakistan since 2000.

World health organization started Expanded Program on Immunization in 1974. At that time only 5% of the children were covered globally in the first year on pro-gram. In Pakistan 16.34% of the total population is under five years’ children. In 2000 Global Alliance for Vaccines and Immunizations (GAVI) was introduced in Paki-stan. Since 2000 by the finance and HR support from GAVI, additional 370 million children have been vaccinated from deadly disease. It has been noticed that the expenditure on immunization remained inconsistent over the time period. Since 2000 the massive change is seen in the pattern of expenditure on immunization both routine and campaigns to meet the goals. In Pakistan, expenditure on immun-ization has reached to $240 million annually but still the fully immunized children are between 43-62% of all the under-five population of the country. Immunization services needed to be on time and efficiently provided to the communities. The growth in fiscal gap and need for expenditure competition in financing, has subju-gated policymaking. There is a need for reviewing the current policies for budgeting immunization program and needful risk assessment will support future financial crisis.Key Words: Immunization, Global Alliance for Vaccines and Immunization,Extended Program of Immunization,

Local Government Financing Practice and Challenges in Developing Countries with Reference to Nepal

The fundamental problem confronting most local authorities, especially those managing cities in developing countries, is the widening gap between the availability of financial resources and municipal spending needs. One of the main reasons for this increasing fiscal gap is the rapid growth of urban populations, which creates an ever-increasing demand for public services, new public infrastructure, and its maintenance. Most cities in developing countries depend mostly on central government transfers, with lesser revenues derived from property taxation and service charges. The main aim of this study is to review the scholarly published documents regarding the responsible governing system of the local government in the developing economy and to observe the challenges to them to manage fiscal imbalances. Looking at the practice of fiscal federalism and economic decentralization, there is no uniformity in the global experience. Developed countries are at the forefront of this agenda while developing countries have different experiences. It is important to find the right path with the appropriate solution to the problem seen from the international experiment and move forward accordingly. It is important not only to make laws but also to achieve prosperous prosperity through their proper use and for that it is important to understand that the implementation of the law should be done in the right spirit.

North Aceh Regional Innovation Policy in the face of reduced Regional Fiscal Capacity after the end operational PT. Arun. LNG

Through Law no. 11 of 2006 concerning the Government of Aceh. Aceh has very broad powers, especially in the area of fiscal decentralization, which allows the Aceh government to have greater discretion in maximizing its fiscal needs. The phenomenon that occurred in North Aceh is very paradoxical with the fact that the North Aceh Government experienced a very large budget deficit after the end of PT. Arun. LNG as a contributor to oil and gas revenue sharing. This study aims to find out what innovation policies are carried out by the North Aceh Regency Government to overcome the budget deficit after the end of PT. Arun LNG. The results of the study show that various policies have been carried out by the North Aceh government but are still short-term in nature. So it can be concluded that the North Aceh Government does not have Social Accountability in implementing Aceh's Special Autonomy. In the Medium-Term Development Plan, a major policy that is substituted for income that will be lost after the end of the operations of PT. Arun.LNG so that the budget deficit can be overcome and the regional fiscal gap does not become negative.Through Law no. 11 of 2006 concerning the Government of Aceh. Aceh has very broad powers, especially in the area of fiscal decentralization, which allows the Aceh government to have greater discretion in maximizing its fiscal needs. The phenomenon that occurred in North Aceh is very paradoxical with the fact that the North Aceh Government experienced a very large budget deficit after the end of PT. Arun. LNG as a contributor to oil and gas revenue sharing. This study aims to find out what innovation policies are carried out by the North Aceh Regency Government to overcome the budget deficit after the end of PT. Arun LNG. The results of the study show that various policies have been carried out by the North Aceh government but are still short-term in nature. So it can be concluded that the North Aceh Government does not have Social Accountability in implementing Aceh's Special Autonomy. In the Medium-Term Development Plan, a major policy that is substituted for income that will be lost after the end of the operations of PT. Arun.LNG so that the budget deficit can be overcome and the regional fiscal gap does not become negative.

Transforming public finance under the impact of COVID-19

Devastating effects of the COVID-19 pandemic throughout the world enhance the societal requests for effective healthcare and social protection systems, modern education, and high-quality infrastructure. In Ukraine, education, healthcare, and social services have been chronically deteriorating, and the corona-crisis has further exacerbated their state and increased poverty in the country. The aim of this study is to reveal the main weaknesses of fiscal policy in Ukraine and to outline the prospects of public finance transformations under the impact of the COVID-19. To achieve this aim, the indicators of fiscal policy response to the pandemic in Ukraine are calculated and a comparative analysis of Ukraine’s public finance structure with the international patterns is undertaken. A moderate fiscal impulse and insufficient fiscal rescue package in Ukraine are shown. Moreover, the inconsistencies of anti-crisis fiscal policy instruments with the international best practice are revealed. Summarizing the available theoretical sources and recent applied research allows identifying the prospects of public finances transformations under the impact of the COVID-19 in a global context. Along with the obtained results of Ukraine’s fiscal sector analysis, these form the basis for shaping the fiscal policy response in Ukraine over the medium term. Proposals for public financing of Ukraine’s health care and educational sectors, of the social safety nets and infrastructures under the impact of the pandemic are developed. Offsetting measures from the expenditure and revenue sides of the budget are drawn up for closing the arising fiscal gaps.

Optimizing Investment Selection for PPP Framework in the Transport Sector: A Risk Perspective

The huge financial requirement of essential transport infrastructure system has challenged the availability of government funding. To fill the fiscal gap, public–private partnerships (PPP) framework has been applied as a promising mechanism. The success of PPP projects, however, is significantly influenced by a number of critical factors. Therefore, an optimum and comprehensive evaluation of projects, reflecting critical risks, supporting investment decisions, has been highly demanded by both the public and private sector. Various works, in previous studies, have been spreading scientific models assessing risks in the construction industry, and some of them focused on the area of PPP. However, the majority of published methods just concentrated on addressing and leveling risks, and there is a lack of application in evaluating and comparing different PPP projects, as investment options, with regards to key issues. Hence, in the situation of limited budget, the public and private partners may struggle with deciding the most potential alternative. To overcome this real-world challenge, this paper, by proposing a mathematical model, attempts to optimize investment selection by evaluating different projects' riskiness with the focus on transport projects. Different actual PPP transport projects in Vietnam were employed as case studies to analyze the practicality of the proposed application.

A Fiscal Theory of Money and Banking

We introduce banks to the fiscal theory of price level to study the effectiveness of open market operations in correcting the distortions caused by an improper tax rate. A rise in the tax rate increases the real purchasing power of payment liquidity for short-term consumption, but reduces firms' incentive to take loans for long-term investment. An excessively low tax rate leads to an over-investment problem, which can be rectified by a combination of reverse repo operations and a positive reserve requirement. The optimal reverse repo rate is a function of the “fiscal gap”, that is, the difference between the optimal tax rate and the actual tax rate. By contrast, an excessively high tax rate leads to an under-investment problem. Open market operations are ineffective in this case as the zero lower bound of interest rates prevents the central bank from injecting additional credit to the economy.

The Analysis of Regional Expenditure Responses to Block Grants Transfer from Central Government

The implementation of fiscal decentralization in Indonesia is exactly two decades in year 2021, during this time the policies in the field of transfers to regions have developed with a significant increase in the budget. The budget increasing of transfer to regions is expected to increase the region in providing services to the community and increase development. Furthermore, the objectives of fiscal decentralization are to reduce fiscal gaps and encourage regional governments to be more independent. This study aims to determine the response or behavior of regional spending to transfer funds (block grants) from the central government. The research locus are all districts/cities in West Java, Central Java, and East Java Provinces and used a panel data equation, with variables are regional expenditure, general allocation fund (DAU), sharing allocation fund (DBH), and local revenues (PAD). The results showed that the block grant in the form of DAU encouraged an increase in regional spending. Meanwhile, DBH does not cause a flypaper effect. In the future, in order to achieve the region’s independence, the influence of the flypaper effect from the DAU should be minimized, and the exploration of potential regional revenues needs to be optimized.

The fiscal effect of the recalculation of main old-age pensions stemming from L. 4387/2016

L.4387/2016 introduced the recalculation of existent pensions based on a new type of formula and replacement. The difference between the amounts paid to pensioners at that time and the amounts calculated based on the new law, quoted as personal difference, was later legislated to be either cut, if it was positive, or paid in the long run, if it was negative. This coincided with legislation that froze pension indexation for the years up to 2022. Even though the pension indexation freeze is still valid, the pension reductions initially planned for 2019 were avoided. The pension increases, where applicable, were paid as planned, again in 2019. The extensive workload demanded to make the recalculation and the fiscal gap in contributions in the Greek pension system creates space for possible future application. In this view, this paper focuses on the fiscal effect of the reduction of the personal difference in combination with the freeze in pension indexation.

Fiscal disparities among local governments in Zhejiang Province, China

ABSTRACT Although nearly all local governments in China face serious fiscal challenges, fiscal pressures on some local governments are more severe than on others. Using data from 2011 through 2016, this paper measures the relative fiscal condition of local governments in a single Chinese province as a means of quantifying fiscal disparities within the province. We measure the fiscal gaps between local governments’ expenditure needs and revenue-raising capacity. Expenditure needs are estimated using a regression-based strategy to identify a set of characteristics of each local government that influence the costs of delivering local public services. We measure own-source revenue-raising capacity as a function of both local GDP and actual local government revenues. Although fiscal disparities remain, they are substantially reduced after the receipt of equalizing intergovernmental transfers. Because per capita transfers to rural local governments are much larger than transfers to large city governments, post-transfer fiscal health is actually weaker in the province’s larger cities than in smaller, more rural jurisdictions.

Rwanda: Lessons from Applied Intergovernmental Fiscal Equalization Formula

It is a well-known fact that budgetary allocations need to be based on a just formula for balanced service delivery in the modern world. This paper describes the intergovernmental formula designed for Rwanda in 2003 to allocate grants from the central to local governments (LGs). First, the previous criterion, the Local Authority Budget Support Fund, was reviewed. This was followed by a literature review and field visits. Finally, the specifications of the mathematical model are described, followed by the proxy selection, data analysis, econometric evaluation, and estimations used in the study. In 2003, data analysis revealed that LGs had low fiscal capacities and ubiquitous fiscal needs. These were proxied by mean own source revenues and expenditure needs, respectively, in the proposed formula. The difference between the two was taken as the mean fiscal gap. This formula corrected the inherent weaknesses in the previous transfer system. It proposed weighting parameters to determine subnational transfer entitlements. Additionally, it constructed and applied welfare poverty and fiscal gap indices that captured the behavior of LGs in terms of wellbeing, fiscal needs, and revenue capacity for the first time in Rwanda. The study recommendations were entirely adopted by the government. The formula was used to allocate unconditional grants from the central government to LGs to improve service delivery and reduce poverty. The study also highlights that any successful transfer formula design depends on how the following are determined—the transfer pool, weights, proposed variables, and proxy indices—and how they enter the model.

Studi Komparatif Kinerja Keuangan Daerah Induk dan Daerah Pemekaran (Kabupaten/Kota di Provinsi Jambi)

Based on Law No. 33/2004 on the transfer of power from the central government to the local government in managing, collecting and managing the source of receipt in accordance with the potential and conditions of their respective regions or seized by fiscal decentralization. In order to realize this goal, local governments are allowed to carry out regional expansion. The purpose of the expansion is to optimize services to the community in light of the growing population development. To improve service performance, it is certainly required to have sufficient financial capabilities. In order to ensure the implementation of the implementation, the financial capabilities of each region are required, but regional autonomy often creates fiscal gaps and becomes a burden on the central government as a result of the inability to finance development carried out by local governments. Therefore, efforts are needed to improve and find alternative sources of new admissions taking into account the conditions and potential that exist in each area. On the basis of the problem, this research needs to be carried out to see if the implementation of regional autonomy has been effectively carried out in accordance with the objective of regional autonomy which is to achieve fiscal independence. The objectives of this study are (1) analyzing the financial capabilities of the expansion area and the parent region (2) analyzing how the new and parent districts receive efforts in the implementation of fiscal maturity. The data used in this study is secondary data of danalm bentum time series in the period 2009-2017 sourced from Dispenda, BPS and related agencies from 11 districts / cities in Jambi Province. Analysis of data used by nature of this study with models of fiscal decentralization degrees (FDD), Regional Spending Performance and Regional Financial Retdor. While to measure tax efforts used the Tax Ratio and Tax Capacity model.

Mexico Needs a Fiscal Twist

Mexico’s fiscal response to the pandemic has been modest compared to its peers, reflecting the authorities’ desire to not issue new debt for spending. This approach, however, risks a more severe recession and a weaker economic recovery, with further costs in the future. Balancing the need for stronger near-term fiscal support for the people and the recovery against medium-term discipline, this paper lays out an alternative strategy. We show that credibly announcing a pro-growth and inclusive medium-term fiscal reform upfront—including increased tax capacity, higher public investment and strengthened social safety nets—would open space for larger short-term support and close medium-term fiscal gaps. Model simulations suggest that this package would boost output, limit lasting economic damage from the pandemic, and put debt trajectory on a declining path in the medium term as tax reforms pay off and risk premia decline.

Пандемія COVID-19 та фіскальна стійкість

The article deals with the impact of the COVID-19 pandemic on the financing of the health care system, and the main challenges to the stability of the financial mechanisms of post-pandemic health care development have been identified. The author substantiates the peculiarities of the crisis of health care financing in the conditions of the current pandemic, further economic recession and decreased fiscal sustainability. The global practice of fiscal response to the manifestations of the COVID-19 pandemic has been systematized and the volumes of the corresponding financing in the countries with insurance and budgetary systems of health care financing have been estimated. The article identifies mechanisms for the transformation and expansion of the fiscal space in the context of expanded financing of the growing need for medical care in the face of new epidemic risks in different countries. Most often, the expansion of a country's fiscal space is carried out by: redistributing the existing amount of government expenditure for health care and redirecting funding flows from financing certain types of medical care to financing programs to overcome and combat COVID-19; changes in the priority of government health expenditure to combat COVID-19 compared to other budget expenditures on the social sphere and economic development; and using national reserve funds and emergency funds. It has been found that in the field of health care, the vast majority of countries have reduced the economic and territorial deprivation of all population groups in access to the diagnosis and treatment of COVID-19. The author emphasizes the weaknesses of insurance based and decentralized health financing mechanisms to respond to the growing need for health care and financial stability during the pandemic. Substantiated the necessity to expand the fiscal space needed to cover the fiscal gap in Ukraine caused by the requirement to increase health care financing in response

What Is the Remedy for State and Local Fiscal Squeeze During the COVID-19 Recession? More Debt, and That Is Okay

The COVID-19 crisis is placing a tremendous fiscal squeeze on state and local governments in the United States. We argue that the federal government should increase its deficit to fill in the fiscal gap. In the absence of sufficient federal assistance, we recommend that states suspend their balanced budget rules and norms and run deficits in their operating budgets to maintain services and meet additional obligations due to the pandemic. A comparison with Eurozone countries shows that states have more than enough debt capacity to run short-term deficits to respond to the crisis.

BLOCK GRANT (DAU) AND POVERTY ALLEVIATION IN INDONESIA

AbstractDana Alokasi Umum (DAU) is the block grant allocated by central government to fill in the Fiscal gap as Indonesia implementing decentralization. The local government as mandated in the decentralization act can implement development program with the fund. Therefore, the fund can improve local economic activities and alleviate poverty in general. This study exercise econometrics model of regression to investigate the relationship between the DAU and poverty alleviation in Indonesia during 2000 to 2018. The result show that the fund only help to reduce poverty in lag time. Therefore, it implies the local government depend on the fund to activate the program in the region.

Papua New Guinea

The COVID-19 pandemic erupted just as the government was beginning to implement wide-ranging fiscal, foreign exchange, structural, and governance measures under a Staff-Monitored Program (SMP). The authorities have reaffirmed their commitment to these reforms, but the impact of the crisis is generating balance of payments and fiscal gaps of 4 and 3 percent of GDP, respectively. In the near term, risks are primarily on the downside, especially if there is a widespread local outbreak of the virus. Papua New Guinea’s longer-term outlook remains positive, largely reflecting the likelihood of major resource sector projects.