Fiscal History Research Articles

A Monetary and Fiscal History of the United States, 1961–2021 – Alan S. Blinder’s reviewed by James L. Caton

In the realm of economics, fostering debates and embracing diverse opinions is paramount for driving innovation and achieving optimal outcomes. Alan S. Blinder’s seminal work, “A Monetary and Fiscal History of the United States, 1961-2021,” published in October 2022, exemplifies this ethos. Blinder, a renowned economist and Professor at Princeton University, draws from his extensive experience, including roles as Vice Chairman of the Federal Reserve Board and a member of President Clinton’s Council of Economic Advisers, to offer a unique perspective rooted in Keynesian economics. Through his book, Blinder not only enhances our comprehension of various economic concepts but also underscores the significance of critical thinking and vigorous debate in shaping public research.

Book Review: A Monetary and Fiscal History of the United States, 1961-2021

Book Review: A Monetary and Fiscal History of the United States, 1961-2021

A Comprehensive Approach to Bankruptcy Risk Evaluation in the Financial Industry

The study presents a comprehensive approach to examining the potential risk of bankruptcies in financial sector organizations. This investigation explores 20 financial sector entities and evaluates their fiscal history from 2000 to 2018. The developed model assesses the chance of these companies going bankrupt by analyzing indicators like liquidity, profitability, debt composition, and operational effectiveness. These metrics are contrasted to regulatory requirements and assessed as having low, moderate, or elevated risk repercussions, ultimately contributing to an overall threat rating. Additionally, the model has a unique algorithm that compensates for excessive debt levels, strengthening the reliability of the risk appraisal grade. This straightforward instrument illustrates the demand to incorporate a variety of financial health indicators. According to the findings, excessive amounts of debt have a detrimental influence on profitability, leading to decreased stock returns and a greater probability of bankruptcy. These findings have practical implications for investors and stakeholders, providing insightful information to help inform decision-making, especially during periods of economic unpredictability such as pandemics. Furthermore, they encourage the enhancement of financial market efficiency.

Fiscal Rules and Federal Capacity in American Fiscal History: Lessons for Europe?

Recent comparative fiscal federalism work has noted how the US displays a mix of substantial federal capacity and no federal fiscal rules for sub-federal units as opposed to the EU’s mix of regulation and lack of capacity. The difference is explained by the lack of federal capacity in the EU case, which presumably creates a need for regulation. However, these studies are cross-sectional. This carries the obvious drawback of abstracting the actual political and historical processes that have given rise to the respective mixes of regulation and capacity in the two polities. In this article, I trace the historical process by which the specific mix of no rules and capacity became entrenched in the US in the second half of the 20th century and ask whether that political-economic history has any lessons for the EU today.

Salt of the Empire: the making of an Ottoman monopoly, 1838–1881

AbstractThe present article is a study of the fiscal history of the Ottoman salt monopoly before 1881, when it was taken over by local and European creditors. It brings a novel perspective to the literature on Ottoman finances by highlighting a case of centralized collection of an indirect tax. It argues that the interplay between the government’s urge to raise indirect contributions and the consumers’ proclivity to illicit salt determined the enterprise’s sustainability. Not merely a security for European credit, the salt monopoly was a genuine Ottoman institution in the transformation to a modern fiscal state.

A Monetary and Fiscal History of the United States, 1961–2021, by Alan S.Blinder (Princeton University Press, Princeton, NJ, 2021), pp. 432.

A Monetary and Fiscal History of the United States, 1961–2021, by Alan S.Blinder (Princeton University Press, Princeton, NJ, 2021), pp. 432.

A Monetary and Fiscal History of the United States, 1961–2021

Eric M. Leeper of Department of Economics, University of Virginia reviews “A Monetary and Fiscal History of the United States, 1961-2021” by Alan S. Blinder. The Econlit abstract of this book begins: “Examines monetary and fiscal policy in the United States since the 1960s, chronicling how stabilization policy struggled to fight recessions, unemployment, and inflation.”

Alan S. Blinder: A monetary and fiscal history of the United States, 1961–2021

Alan S. Blinder: A monetary and fiscal history of the United States, 1961–2021

The Money War: democracy, taxes and inflation in the U.S. Civil War

Abstract Both sides in the U.S. Civil War financed military spending by issuing new fiat currencies. The Union ‘greenback’ underwent moderate inflation (by wartime standards), but the Confederate ‘greyback’ suffered hyperinflation. Existing explanations for these price movements typically treat only one of the two cases and adopt either a quantity theory or rational expectations approach. We compare Union and Confederate policies directly and highlight the importance of taxation for assuring the value of inconvertible money. Combining monetary and fiscal history literatures, we find that tax policies were determined by long-term development of democratic governing institutions. Higher levels of democracy in the North, as compared to the slaveholding South, meant greater tax policy legitimacy and administrative competence. The Union drew on this legacy to back its money effectively, while the Confederacy failed to do so. We contribute to credit theories of money by drawing attention to the political determinants of effective fiscal policy.

Estimating Bohn's Fiscal Sustainability Model with Temporal Variation: Evidence from Turkey

This study aims to estimate a dynamic fiscal reaction function in a state-space setting to obtain time-varying reaction parameters for appraising the evolution of public debt sustainability in Turkey. The data set used for estimation is the longest for Turkey in the literature. Succinctly speaking, this function quantifies the corrective fiscal efforts exerted to preserve the stability of public debt. The time-varying estimation findings in this study suggest that the recent fiscal history of Turkey can be divided into two subperiods in terms of fiscal stability. Before the mid-1990s, no systematic fiscal response existed to restore the stability of public debt, whereas after the mid-1990s, a remarkable effort was evidenced by the positive fiscal reaction parameters. Notwithstanding some 20 years of strong positive reactions, the former performance appears to be far-off in recent years, and the strength of fiscal reaction has waned gradually, which is perturbing for the future course of fiscal sustainability.

The Unlikely Heroes of Progressive Taxation: CEOs’ Support for Bill Clinton’s Tax Increase Package in 1993

AbstractOn August 10, 1993, President Bill Clinton signed the Omnibus Budget Reconciliation Act of 1993, one of the largest fiscal deficit-reduction packages in US fiscal history. This law raised the top individual income tax rate from 31% to 39.6%, which increased the average effective tax rate for high-income earners and shifted the federal fiscal balance from deficit to surplus by the end of the century. Given major business interest groups’ criticism of the Omnibus Budget Reconciliation Act of 1993’s heavy reliance on tax increases over spending cuts, how was the Democrat-controlled Congress able to pass this legislation? Drawing on archival evidence from the Clinton Presidential Library, this paper shows that the administration and Democratic committee chairs mobilized support from corporate CEOs, including Fortune 500 executives, asking them to lobby key legislators to support the bill. Thus, with business leaders’ support and lobbying efforts, the legislation was passed with a very slight majority.

Book Reviews

Eduardo A. Cavallo of Inter-American Development Bank reviews “A Monetary and Fiscal History of Latin America, 1960-2017” edited by Timothy Kehoe and Juan Pablo Nicolini. The Econlit abstract of this book begins: “Fourteen papers plus commentary analyze the origins and effects of various macroeconomic policies in Latin American countries, investigating whether the inability or unwillingness of governments to raise tax revenues or limit spending was the driving force behind the region's instability over the last quarter of the twentieth century.”

Benjamin Dromard. “Nippur and its Region under the Neo-Babylonian and Achaemenid Empires: A Fiscal History”

Benjamin Dromard. “Nippur and its Region under the Neo-Babylonian and Achaemenid Empires: A Fiscal History”

Einleitung: Staatsfinanzen und Konflikt

Abstract The following issue arose from a section at the Congress for Economic and Social History in Regensburg in March 2019 and focuses on fiscal conflicts in Europe from the early modern period until today. Distributive fiscal conflicts are seen here as a probe into the past which can increase our understanding of historical social structures. Fiscal history is analysed as a central arena of the modern state. The introduction provides an overview of current research into fiscal history in Germany and of the contributions presented in this focus issue.

The Money War: An Interpretation of Democracy, Depreciation, and Taxes in the U.S. Civil War

Both sides in the U.S. Civil War financed military spending by issuing new fiat currencies. The Union “greenback” underwent moderate inflation (by wartime standards), but the Confederate “grayback” suffered hyperinflation. Existing explanations for these price movements typically treat only one of the two cases and adopt either a quantity-theory or rational-expectations approach. We compare Union and Confederate policies directly and highlight the importance of taxation for assuring the value of inconvertible money. Combining monetary and fiscal history literatures, we find that tax policies were determined by long-term development of democratic governing institutions. Higher levels of democracy in the North, as compared to the slaveholding South, meant greater tax policy legitimacy and administrative competence. The Union drew on this legacy to back its money effectively, while the Confederacy failed to do so. We contrib-ute to the theory of chartalist money by drawing attention to the political determinants of effective fiscal policy.

Book Review: Tax Policy and Our Democracy

Two new books explore the many ways in which U.S. tax policies and tax systems have promoted social injustices and continue to do so. In RACIAL TAXATION, Camille Walsh provides a vivid depiction of the under-scrutinized fiscal history of elementary through secondary education in the United States, from the post-Reconstruction era until San Antonio Independent School District v. Rodriguez. In OUR SELFISH TAX LAWS, Anthony Infanti details how existing U.S. Federal tax policies manifest problematic power structures that exclude and disadvantage many if not most taxpayers. Together, these books dissect a variety of flawed tax structures and reveal that tax discrimination grounded in race, gender, heteronormativity, differences in physical ability, and, pervasively, power dynamics, are not a malignant tumor on an otherwise healthy body, but rather are a systemic, pathological affliction on the entire U.S. fiscal state. This essay reviews Walsh’s and Infanti’s work, and builds on the authors’ rich historical and analytical contributions to ask: how can tax policy be reformed so that, rather than betraying and undermining the foundations of American democracy, it works to strengthen democratic institutions and their connection with members of a democratic society? I sketch some ways that democratic values could be injected into tax policymaking, starting with a broader conception of democratic accountability in the tax policymaking process, to move us towards the sort of inclusive tax policy that Walsh and Infanti show we have as yet failed to achieve.

The Monetary and Fiscal History of Argentina: 1960-2017

In this chapter, we review the monetary and fiscal history of Argentina for the period 1960–2017, a time during which then country suffered several balance of payments crises, three periods of hyperinflation, two defaults on government debt, and three banking crises. All told, between 1969 and 1991, after several monetary reforms, thirteen zeros had been removed from its currency. We argue that all these events are the symptom of a recurrent problem: Argentina’s unsuccessful attempts to tame the fiscal deficit. An implication of our analysis is that the future economic evolution of Argentina depends greatly on its ability to develop institutions that guarantee that the government does not spend more than its genuine tax revenues over reasonable periods of time.

The Monetary and Fiscal History of Paraguay, 1960–2017

This chapter characterizes the monetary and fiscal history of Paraguay between 1960 and 2017. The analysis is divided into four periods, which are mainly distinguished by inflation levels, the source of financing of the public-sector deficit, and the central bank legal framework. The four main periods are 1962–1980, when inflation and the deficit were moderate; 1981–1990, a decade characterized by fiscal imbalances and nominal instability; 1991–2003, when the worst financial crisis in the country’s history took place and inflation levels remained moderate nonetheless; and finally, 2004–2017, the period of structural reforms and low inflation. We observe, throughout the periods, that monetary and fiscal policy have maintained a generally conservative stance, that periods of macroeconomic instability have been rare, and that average economic growth has been higher than the average for Latin America. However, despite its progress in terms of convergence, Paraguay remains among the countries with the lowest levels of income per capita in Latin America.

Lessons from the Monetary and Fiscal History of Latin America

Studying the modern economic histories of eleven of the largest countries in Latin America teaches us that a lack of fiscal discipline has been at the root of most of the region's macroeconomic instability. The lack of fiscal discipline, however, takes various forms, not all of them measured in the primary deficit. Especially important have been implicit or explicit guarantees to the banking system; denomination of the debt in US dollars and short maturity of the debt; and transfers to some agents in the private sector, which are large in times of crisis and are not part of the budget approved by the national congresses. Comparing the histories of our eleven countries, we see that rather than leading to an economic contraction, fiscal stabilization generally leads to growth. On the other hand, rising commodity prices are no guarantee of economic growth, nor are falling commodity prices a guarantee of economic contraction.

The Fiscal and Monetary History of Ecuador: 1950–2015

We document the main patterns in Ecuador’s fiscal and monetary policy during the 1960–2017 period, and conduct a government’s budget constraint accounting exercise to quantify the sources of deficit financing. We find that, prior to the oil boom of the 1970s, the size of the government and its financing needs were small, and the economy exhibited high growth rates and low inflation. The oil boom led to a massive increase in government spending. The oil prices crash of the early 1980s was not accompanied by any substantial fiscal correction, and the government considerably relied on seigniorage as a source of revenue. This coincided with almost three decades of high inflation rates and stagnant output. The dollarization regime, implemented in 2000, removed the ability of the government to resort to seigniorage to cover its imbalances. Indeed, in spite of large deficits registered since 2007, inflation has remained at historically low levels. However, the recent policies of inflated spending—and the heavy borrowing needed to finance it—remind those that led to the collapse of the economy during the 1980s and 1990s, and generate concerns regarding the long-term sustainability of the dollarization regime, and of the benefits it has provided.