Fiscal Policy Research Articles

Fiscal and Monetary Policy Interactions in a Model with Low Interest Rates

We provide a new Keynesian model where entrepreneurs face uninsurable idiosyncratic investment risk and credit constraints. Government bonds provide liquidity services. Multiple steady states with positive values of public debt can be supported for a given permanent deficit-to-output ratio. The steady-state interest rates are lower than the economic growth rate, and public debt contains a bubble component. We analyze the determinacy regions of policy parameter space and find that a large set of monetary and fiscal policy parameters can achieve debt and inflation stability given persistent fiscal deficits both away from and at the zero interest rate lower bound. (JEL E12, E23, E31, E43, E52, E62, H63)

International monetary fund conditionality and structural reforms: Evidence from developing countries

AbstractThe global economy, dominated by the consequences of a disastrous health crisis and international tensions, needs policy support to regain its growth dynamic. To regain an inclusive and sustainable growth dynamic, structural policies of governments are needed to allow a reallocation of resources and to stimulate productivity. International cooperation seems to be necessary and the IMF's contribution could play an important role in promoting reforms. Indeed, in IMF‐supported programmes, the conditions for developing countries' transition to liberalization and open markets are often common. We address the question of whether periods of International Monetary Fund (IMF) conditionality contribute to the promotion of structural reforms in developing countries. Through the entropy balancing method and alternative identification strategies, we show that IMF conditionality programmes promote structural reforms in developing countries. We show that the effect of IMF conditionality can vary depending on the type of conditionality, the type of reform, the time frame and the initial level of structural reforms and can depend on some structural factors including the business cycle, the quality of fiscal and monetary policy, the level of development and the quality of institutions. Furthermore, we show that IMF conditionality can have spillover effects on trading partners and that IMF conditionality programmes that are met tend to have a greater impact on structural reforms. Finally, the effects of adopting reforms under IMF conditionality depend on domestic partisan politics.

The Role Of State Governments In Fiscal Deficit Management In India: Challenges And Opportunities

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EU Economic Governance as a Supranational Determinant of Health Inequalities in the Eurozone

The COVID-19 pandemic raises the question of austerity's problematic social toll for health in the south of Europe. Has EU economic governance constrained health spending? If so, have these spending levels led to inequalities, which in turn shaped responses to the pandemic? EU economic governance is often dismissed as ineffective because of its poor track record of compliance. Yet austerity is blamed for negative health outcomes. This article shows that the EU fiscal rule is a determinant of health because it affects fiscal policies of European countries. First, the analysis of EU member states during 1995–2018 shows that austerity policies affect health spending and health inequalities. Euro-area countries under the EU Excessive Deficit Procedure significantly consolidated their health spending. The contractionary effect was concentrated in southern countries, contributing to rising health inequalities across the core and periphery. Finally, the analysis shows the pandemic implications of health inequalities, as periphery countries with a track record of high consolidation display more stringent (and costly) COVID-19 response models. This analysis contributes to understanding the supranational determinants of health in the EU, showing the pervasive spillover effects of the fiscal framework on national health policies.

Energy shocks as Keynesian supply shocks: Implications for fiscal policy

This paper analyses the economic impact of and the optimal policy response to energy supply shocks in a flexible price model with heterogeneous households. We introduce energy as a consumption good on the demand side and as an input to production on the supply side. A distinguishing feature is that, in line with empirical evidence, we allow households’ energy demand to be non-homothetic. The model provides three main insights. First, (negative) energy supply shocks act as a (negative) demand shock, or Keynesian supply shock, when two conditions are met: On the demand side household income inequality needs to be large, while on the supply side, the price elasticity of consumption goods needs to be high. Second, the social planner can implement the first-best allocation by subsidising firms and poor households while taxing rich households. Energy shocks then act as standard supply shocks. Last, issuing public debt can help implement the first best allocation when energy shocks are large and/or the economy’s overall energy intensity is low.

Comparative impact of fiscal and monetary policies on economic growth in Nigeria

This work examined the comparative impact of fiscal policy and monetary policy on economic growth in Nigeria over the period 1981 to 2021 using annual time series data on real gross domestic product, broad money supply, government expenditure, total government revenue, and interest rate (lending rate). The objectives are to determine whether the fiscal policy or the monetary policy impacts more on economic growth in Nigeria and to ascertain the causality relationship between fiscal policy, monetary policy and economic growth in Nigeria over the period. The study employed ARDL Bounds Testing methodology in determining whether long run relationship exists between fiscal policy (proxy government expenditure and total government revenue), monetary policy (proxy broad money supply and interest rate (lending rate) and real gross domestic product. The result indicated that broad money supply representing monetary policy has positive relationship with and statistically significant impact on economic growth in Nigeria over the study period as indicated by its t-statistic and probability values of 6.436365 and 0.0000 respectively. Fiscal policy variable (government expenditure), on the other hand, has negative relationship with economic growth and statistically significant impact on economic growth in Nigeria as indicated by its t-statistic and probability values of -2.427968 and 0.0234 respectively. From the result, a change in money supply (monetary policy) affects economic growth positively while a change in Fiscal policy variable (government expenditure) affects economic growth negatively. Besides, the coefficient of monetary policy (0.457048) is greater than fiscal policy coefficient (-0.300554) and implies that monetary policy impacts more than fiscal policy impacts on economic growth in Nigeria. Therefore monetary policy does impact more than Fiscal policy on economic growth in Nigeria over the period studied. The result further indicated that there is no significant causality relationship between fiscal policy, monetary policy and economic growth in Nigeria over the period covered as indicated by the probability values of both fiscal and monetary policy variables employed and economic growth. The study therefore recommends that policy makers should focus more on monetary policy than fiscal policy so as to enhance economic growth since monetary policy has more concern with economic growth than fiscal policy. Keywords: Economic growth, fiscal policy, monetary policy, ARDL, Bound Test, Causality, Nigeria.

Effectiveness of Fiscal and Economic Policy in Monitoring Inflation in Nigeria

This study investigates the effectiveness of monetary and fiscal policies in controlling inflation in Nigeria from 1993 to 2023. Using co-integration and error correction methods on yearly time series data, the study reveals several key findings. The unit root test indicates that only inflation (INF) is stationary at levels, while money supply (MS), taxation (TAX), and government expenditures (GEX) are stationary at first difference. The results show that an increase in the money supply and government expenditures lead to a rise in the inflation rate, whereas higher taxation reduces it. Based on these findings, the study concludes that MS, TAX, and GEX significantly impact on inflation in Nigeria. The study recommends that policymakers should better manage the money supply to reduce the inflation rate by decreasing the amount of money in the economy. Increasing the tax rates on individuals and companies, especially during periods of high inflation, can lower the amount of spendable money among citizens, thereby reducing inflation. Lastly, the government should control its expenditures to decrease the total amount of money in circulation, effectively reducing the country's inflation rate.

Implikasi Ekonomi Kebijakan Fiskal di Masa Khalifah Utsman dan Ali

This study aims to analyze the fiscal policies implemented during the leadership of Uthmanl bin Affanl and Alil bin Abil Talib. The specific objectives of this study are, (1) to identify the fiscal policy applied, (2) to analyze the impact of fiscal policy on the country's economy at that time, and (3) to explore the factors that influenced the choice of fiscal policy by the two caliphs. The research method used is qualitative with a descriptive approach. Data analysis was carried out using the content analysis method. The results of this study show that Uthman bin Affan's fiscal policy is based on sharia principles such as zakat, kharaj, jizyah, and usyur. Uthman also improved the zakat system and managed Baitul Mal with the principle of virtue. Meanwhile, Caliph Ali bin Abi Talib improved the administrative system of Baitul Mal and established taxes for land owners and fresh vegetables. He also minted coins for the Islamic State. Both have a positive impact on the economy and the welfare of the Muslim community.

Education Versus Infrastructure: Is There a Trade-off in an Open Economy with Perfect Capital Mobility?

We present an open economy growth model incorporating various elements of fiscal policy, including government expenditure on education and public capital (infrastructure), budget deficit, internal and external public debt, public consumption, and four tax rates. This detailed description of fiscal policy allows for a systematic study of the relationship between fiscal policy and economic growth. We derive the balanced growth path and analyze its properties, including existence, uniqueness, and stability. The theoretical results are supported by numerical simulations for Poland, with the model calibrated based on data from the years 2010 to 2019. In the baseline scenario, the GDP growth rate converges to 3.98%. However, through appropriate adjustments to fiscal policy, economic growth can be significantly accelerated. Notably, increasing spending on both education and public infrastructure proves to be the most effective way to permanently boost economic growth, even if it requires raising taxes on consumption or increasing public debt.

FISCAL MANAGEMENT OF ENTERPRISE PERSONNEL IN THE CONTEXT OF DEVELOPING INTERNATIONAL ECONOMIC RELATIONS

The aim of the study is to characterize the features of fiscal management of enterprise personnel in the context of developing international economic relations. The primary task set within this article is to identify the most optimal practices for implementing fiscal management of enterprise personnel under the increased influence of changes in the international economic environment. It has been determined that the development of international economic relations requires enterprises to adapt their personnel management with consideration of fiscal aspects. Fiscal management of personnel is characterized as a means of optimizing labour costs through the use of tax incentives, subsidies, and other financial instruments, which enhance competitiveness on the international level. It has been established that effective fiscal management ensures that enterprise activities comply with international standards, allowing them to avoid fines and other legal consequences. The role of fiscal management in optimizing the processes of employee relocation between company branches in different countries, ensuring the legality and financial benefit of such relocations, has been characterized. It has been established that proper management of fiscal aspects helps companies expand into new markets by ensuring the effective integration of local and foreign workers into the corporate culture. The necessity of implementing modern technologies and enhancing the qualifications of specialists to improve the fiscal management of personnel has been characterized. It has been proven that effective fiscal management of personnel contributes to optimizing tax obligations, increasing competitiveness, and ensuring the international integration of enterprises.

On increase of land tax in Kazakhstan

Land tax is one of the sources of formation of local budgets, filling their revenue part. The aim is to analyze the legal framework of the existing system of land taxation, to substantiate the need to increase mandatory payments for land. The following methods were used - monographic - to study the foreign experience of land taxation, statistical - to collect data on tax revenues, the state of the land fund, analytical - in the study of methods of tax payment, on the basis of abstract-logical method problems were identified and ways of their solution were proposed. Results - foreign experience of tax regulation has shown that fiscal policy is aimed at creating favorable preferential conditions for agricultural producers and improving soil quality. The existing domestic methodology of tax payments depending on the purposes of application is considered. The analysis of tax payments in dynamics for 7 years is presented. Land tax rates and rent in the context of target use are calculated. It is revealed that the tax for peasant (farm) farms in accordance with the income from the sale of agricultural products is not quite acceptable, as the costs of its production are not taken into account. Conclusions - it is established that a 40-fold increase in the land tax is premature, since to date such a measure is legislatively approved in the amount of 20-fold. It is recommended to increase the tax burden on residential lands for individual residential construction, shopping and entertainment centers and industrial facilities. Involvement in agricultural turnover of 62.5 million hectares of pastures, concentrated in the category of reserve lands, will make it possible to improve their quality level and receive additional money for the state budget.

Fiscal Tools for Promoting Efficient Economic Growth

Contemporary crisis phenomena, including financial, structural, political, and social aspects, underscore the need for effective fiscal policy to ensure the resilience and development of the country. Additionally, there are currently complex challenges related to the war, such as infrastructure destruction, business shutdowns, and mass migration, which have significantly impacted the country’s economy and require additional financial resources for recovery. This situation necessitates the search for new sources of income and the optimisation of existing resources, highlighting the importance of effective tax regulation to overcome economic challenges during conflict. This scientific article aims to determine the role of fiscal policy in ensuring effective economic development, as well as the importance of tax instruments and their efficiency in promoting economic growth and optimising financial resources. In the research process, literary sources were analysed, and statistical data was scrutinised to evaluate the dynamics of state revenues and expenditures and the impact of tax receipts on the state budget. The study emphasises the importance of tax instruments for economic development and meeting the country’s financial needs. The efficient use of tax instruments facilitates the collection of sufficient revenues to fund social and economic needs. The study highlights the importance of employing the necessary tax instruments to ensure the country’s effective economic development. In martial law conditions, mobilising fiscal reserves and activating tax instruments become critical strategies for ensuring financial stability and supporting the economy. However, the successful implementation of these measures requires the improvement of the organisational structure and administration. A balanced approach to tax burden, a conducive environment for business, and the development of new revenue sources are critical in ensuring financial stability and supporting economic growth during conflict.

The Nexus of Fiscal Policy and Growth in the Optimal Control Framework

This research investigates the effect of fiscal policy on economic growth, focusing on the intertwined relationship between public goods provision, taxation policies, and their impact on economic dynamics and growth. The study aims to contribute to this research domain by introducing an economic model within the optimal control framework that integrates taxation policies into the social constraint and incorporates public goods into the social utility function, addressing recent limitations in this research area. Through numerical analysis, the study examines the potential effects of taxes and public goods provision on consumption and economic growth, as reflected by the level of capital. Results indicate that increasing government spending on public goods can decrease private goods consumption without significant economic growth benefits. At the same time, high tax rates could potentially hinder economic growth by overly relying on government intervention. The research findings highlight the importance of an optimal approach to fiscal policy, with policy implications including the need to carefully evaluate public funds' allocation, enhance public spending efficiency, and implement optimal tax to foster economic growth.

Міжнародні боргові метрики в контексті фінансування "зеленого" порядку денного

The article summarizes the public debt policy issues in the context of financing climate change measures, and suggests priorities and mechanisms of fiscal, debt and sectoral policies to ensure sufficient financing of the green agenda. Authors have emphasized the trilemma between achieving climate goals, maintaining fiscal sustainability, and ensuring political capacity. It has been found that even under favorable external financial conditions, climate-vulnerable countries face a constant premium to the cost of borrowing. As a result, developing countries with high levels of debt and climate vulnerability are caught in a vicious circle of growing investment needs for climate- sustainable structural transformation and significant dependence on increasingly expensive debt financing, which leads to a combination of deteriorating debt sustainability and insufficient funding for climate change challenges. Authors argue for a comprehensive multilateral policy aimed at reforming the international debt architecture and increasing the amount of available financing for climate change adaptation under a government-led framework. Achieving common goals requires a carefully calibrated combination of climate change mitigation instruments based on enhanced domestic revenue mobilization, in particular through carbon pricing, more efficient spending on transfers, green subsidies and investments, and regulatory measures. Authors propose a comprehensive approach to implementing climate change mitigation policies, including the implementation of a fiscal strategy, sectoral policies to prevent climate change, and stimulating private investment. Emphasized the importance of developing further tools for incorporating climate policy into debt sustainability analysis.

Volatility Index, Exchange Rate, Economic Growth On Stock Indexes

This study aims to analyse the effect of economic growth on the stock price index in Indonesia and Malaysia during the COVID-19 pandemic. Using regression analysis, this study measures the relationship between economic growth and the stock price index, focusing on both countries' fiscal and monetary policies. The results show that economic growth has a positive and significant effect on the stock price index in Indonesia and Malaysia, reflecting investors' optimism towards the economic outlook. Economic stimulus policies and monetary measures the government and central bank take are essential in supporting economic recovery and stock market stability. This research provides important insights for investors in making more informed investment decisions based on economic growth indicators. This study also emphasises the importance of responsive and coordinated economic policies to support economic growth and stock market stability in times of crisis.

Correction: Kandemir et al. Women in Parliaments and Environmentally Friendly Fiscal Policies: A Global Analysis. Sustainability 2024, 16, 7669

In the original publication [...]

Government debt and stock bubbles in China

Herein, we used Vector Autoregressive and Dynamic Stochastic General Equilibrium models to examine the relation between central government debt and stock bubbles in China. The empirical findings indicate a considerable negative correlation between central government debt and stock bubbles. The model's results also illustrate that the liquidity substitution effect mainly drives a negative linkage. When commercial banks hold government debt, the effect establishes a connection between central government debt and asset bubbles through commercial banks' balance sheets. Further analysis indicates that countercyclical fiscal policies impact the negative correlation between government debt and stock bubbles. The findings suggest that governments should regulate debt levels to manage asset bubbles.

Do fiscal policy and economic growth improve or harm the environment? An empirical analysis with a Bayesian approach and threshold estimation in one of the emerging and growth-leading economies

Do fiscal policy and economic growth improve or harm the environment? An empirical analysis with a Bayesian approach and threshold estimation in one of the emerging and growth-leading economies

Stimulus Policy in Uncertain Times: Evidence on the Impact in Real Estate Markets

The COVID-19 pandemic introduced historic high levels of economic and policy uncertainty alongside historic accommodative monetary and fiscal policy. Economists have theorized that uncertainty can inhibit market participants’ response to policy stimulus. We empirically tested whether the behavior of house prices following the COVID-19 pandemic is associated with changes in policy and economic uncertainty by examining a sample of 111 housing markets in the United States. We found that while accommodative monetary policy and several rounds of fiscal policy providing direct payments to households were made throughout the pandemic, house prices increased most significantly only after the uncertainty had resolved, nearly a year after the first policy moves. These effects were strongest in higher quantiles of the house price distribution and uncorrelated with the level of cash transfers received in the local housing market.

Coordination of Monetary and Fiscal Policies from a Game Theoretic Perspective

Under the backdrop of a highly intricate international environment and sluggish recovery of the global economy, it is crucial to delve into methods for bolstering national economic prowess and promoting economic prosperity and stability. Monetary policy and fiscal policy, as two primary macro-control tools, play a pivotal role in national progress, with their effective coordination becoming a significant issue. Game theory, a tool to mathematically model decisions made by different individuals through logical analysis, provides a solid theoretical foundation and practical framework for studying the issue. This paper utilizes game theory to model the coordination among the two policy-makers, the central banks and the governments while establishing a payoff matrix that reflects their utilities. During normal or recovery periods, this paper views it as a cooperative game, and the cooperative equilibrium will be that both policy-makers choose expansionary policies. During financial crisis, this paper views it as a non-cooperative game, and the Nash equilibrium will be that both policy-makers choose contractionary policies. Additionally, this paper selects specific examples from Brazilian history to validate the rationality of the model while confirming that the short-term equilibrium aligns with the modeling conclusions.