Fiscal Policy Framework Research Articles

FISCAL POLICY FRAMEWORK IN A DECARBONIZED FUTURE FOR RESOURCE-RICH COUNTRIES

In a world transitioning towards decarbonization, resource-rich countries (RRCs) face unique challenges in shaping their fiscal policy frameworks, necessitating significant adjustments. This paper analyzes the effects of decarbonization on the fiscal policies of RRCs, focusing on the intersection of fiscal sustainability and sustainable development goals. The key findings reveal that effective fiscal discipline is crucial for maintaining fiscal sustainability amid fluctuating resource revenues. Implementing medium-term budget frameworks helps RRCs manage economic volatility and plan for long-term fiscal health. The adoption of green fiscal policies can support RRCs in navigating the challenges of decarbonization, contributing to both fiscal sustainability and sustainable development goals. Additionally, decarbonization affects various economic aspects, including budget revenues, expenditures, and the overall fiscal sustainability landscape, necessitating tailored fiscal policies. This comprehensive analysis provides valuable insights into designing and implementing fiscal policies suited to the needs of resource-rich countries during the global energy transition. The study highlights how green fiscal policies can assist RRCs in managing decarbonization challenges while achieving sustainable development goals.

Federalism and Democracy: A Bibliometric Review and Future Research Agenda

This study aims to explore the complex relationship between federalism and democracy through bibliometric review through Scopus database from 1962 to 2024. Based on 522 articles extracted on “Federalism and Democracy” from Scopus database, highlights how these two political concepts interact across countries including United States, Ethiopia, and Nigeria and historical contexts, emphasizing the complementary yet potentially conflicting nature of their relationship. The paper points out the critical role of federalism in enhancing democratic principles such as accountable governments, increased political participation, and protection against majority tyranny. It also acknowledges the challenges and tensions arising from intergovernmental coordination and democratic governance within federal systems. Authors have done a comprehensive analysis, exploring the dynamics of fiscal policy, legal and constitutional frameworks, and the influence of federalism within the European Union. It further examines the application of federalism and democracy in specific national contexts, including the United States, Ethiopia, and Nigeria, to illustrate the diverse ways these concepts evolve and impact societies. Through this exploration, the paper provides insights into how federalism can either strengthen or weaken democracy based on factors such as party politics, fiscal decentralization, and the legal-institutional setup. This study sets a future research agenda by exploring 20 research questions spread across ten thematic clusters. These clusters cover a wide range of topics, from fiscal policy and party politics in federal systems to the role of political parties, elections, legal aspects of federalism, and new developments in European federalism. By outlining these future research directions, the paper aims to guide further scholarly exploration and understanding of the complex relationship between federalism and democracy.

Islamic Microfinance an Instrument for Poverty Alleviation in Pakistan: A Case Study of Sindh

This study aims to investigate how Islamic microfinance can be utilised in Pakistan to alleviate poverty and encourage long-term development. Additionally, it examines the fundamental ideas of Islamic finance and the connection between sustainable development and real economies. The survey was conducted in Sindh; Province of Pakistan. It was observed that despite number of non-Muslim are living in Sindh; Islamic Microfinance does not hindered by any religion. The study also discovered that Islamic Microfinance combined with an appropriate framework for monetary and fiscal policy, have a favourable impact on Pakistan's efforts to reduce poverty.
 
 Received: 10 November 2023 / Accepted: 29 December 2023 / Published: 5 January 2024

Public investment as a growth driver for a commodity-exporting economy: Sizing up the fiscal-monetary involvement

<abstract> <p>The study presents a solution to maximize public investment as a growth driver for commodity-exporting economies. The solution is to compensate for the low efficiency of public investment by drawing on internal and external factors within an active fiscal and monetary policy framework. For this, the paper introduces a quantitative model that implements a golden rule of public finance in a resource boom backed by a sovereign wealth fund under an active monetary policy stance. The modeling results show that mobilizing windfall resource revenues to finance increased public investment can limit a crowding-out effect through proper resource allocation and change the sectoral structure in favor of the final goods sector. As confirmed by the sensitivity analysis, the low efficiency of public investment can be partially offset by a less restrictive monetary policy response to fiscal dominance, but this leads to excessive volatility in financial indicators. However, if the public debt burden is an issue due to a more robust fiscal dominance regime, a higher tax rate on exported raw materials can be used to maintain sustainability. By developing a policy goals domain, the paper initiates a discussion that can direct policy recommendations toward a promising growth path by maximizing the public investment driver in the complex policy environment of fiscal-monetary interaction.</p> </abstract>

Zakat Infaq and Sadaqah as a Modern Fiscal Instrument in Indonesia

This study investigates the integration of Zakat, Infaq, and Sadaqah (ZIS) in Indonesia's modern fiscal policy framework. The research method involves analysing the impact of ZIS on economic growth, wealth distribution, and social inclusion. The background problem arises because although ZIS has been proven to contribute positively to the welfare of society, its integration as a critical component of fiscal policy is still limited. Challenges involve regulatory formulation, efficient fund management, public awareness, and harmonisation of sharia objectives. This research is expected to provide recommendations to policymakers to design effective strategies for integrating ZIS in fiscal policy, with positive impacts on Indonesia's economic efficiency, social cohesion, and economic justice.

The Evolution and Challenges of the EU’s Fiscal Policy Framework: A Critical Analysis

The European Union’s fiscal policy framework has undergone significant evolution and faced numerous challenges since the establishment of the Economic and Monetary Union (EMU). This essay critically analyzes the development, reforms, and critiques of the EU’s fiscal rules, particularly in light of the sovereign debt crisis and the recent pandemic. Initially, the EMU focused little on fiscal integration, but the subsequent two decades have been marked by expansion and crisis management, with key reforms such as the ‘Six Pack,’ the Treaty on Stability, Coordination and Governance (TSCG), and the ‘Two Pack’ aiming to stabilize the EMU and prevent unsustainable public finances. Despite these efforts, the EU’s fiscal rules have been criticized for their complexity, rigidity, and lack of enforcement, leading to ineffective fiscal management. The Maastricht Treaty’s fiscal cap and public debt target, operationalized through the Stability and Growth Pact (SGP) since 1999, have been particularly scrutinized. Current proposals for reforming the EU’s fiscal framework are seen as insufficiently simple, flexible, and effective, potentially leading to unintended negative consequences. The essay also examines the role of the European Banking Union (EBU) in the fiscal policy framework, established in response to the financial crisis and designed to ensure the soundness of Europe’s financial sector. The EBU, with its Single Supervisory Mechanism (SSM) and Single Resolution Mechanism (SRM), plays a critical role in preventing banking sector problems from causing financial distress in EU countries.

Unregulated economic activities and the environment: The role of fiscal policies

African countries are characterized by high unofficial activities, coupled with a fiscal structure that could either undermine or promote these activities to affect the environment. This study examines the direct and indirect environmental impacts of the unregulated economy and the fiscal instruments of government expenditure and tax using the panel quantiles regression technique. Driven by data availability, our analysis covers 46 countries when the fiscal variables are not considered, while 41 and 38 countries are respectively included in the models involving government expenditure and tax revenue from 2000 to 2016. We discover that the direct impact of unofficial economic activities is unfavourable on the environment, as it increases carbon emissions. The direct impacts of the fiscal policies are heterogeneous. The environmental effect of government expenditure changes from favourable to unfavourable as the countries move from low to high emissions levels. On the other hand, tax is only environmentally friendly in countries with moderate levels of emissions. The interactive effect of an unregulated economy and government expenditure worsens and improves the environment at low and high emissions levels, respectively. The results are heterogeneous for the interactive effect of unregulated economy and tax, although they are more biased toward a satisfactory impact on the environment at the extreme quantiles. Appropriate regulation of informal activities and the design of effective fiscal policy frameworks for environmental sustainability are policy derivatives of these findings.

Examining the contribution of fiscal policy on economic growth: Analytical insights from Pakistan

To better understand the influence of fiscal policy (FP) on economic growth (EG) in Pakistan, this study investigates the importance of the amount of output produced by different factors of production in Pakistan's economy. The annual time series data has been collected from the State Bank of Pakistan and World Bank Data-Base from the years (2001-2020). The Autoregressive Distributed Lag (ARDL) model is used for empirical research to assess the significant factors of EG, and the Augmented Dickey-Fuller (ADF) unit root test is used to ensure that all of the variables are stationary. Using annual time series data from 2001 to 2020. Based on these findings, this study recommends adopting a proactive fiscal policy framework that incorporates expansionary measures. We argue that this strategy has the capacity to stimulate and maintain Pakistan's economic growth path, thereby fostering a more promising and prosperous future. Moreover, the study found the impact of government expenditures (GE), gross fixed capital creation (GFCC), and direct and indirect taxes on Gross domestic Product (GDP). Additionally, findings showed that government expenditures, gross fixed capital creation, indirect, and direct taxes have a strong effect on economic growth. It is argued that an expansionary fiscal policy in the future could greatly benefit Pakistan's economic growth.

TAX COMPONENTS AND ITS EFFECTS ON INDUSTRIAL OUTPUT IN NIGERIA

Taxation is a major component of the fiscal policy framework of any nation with a key objective for stabilization of the economy and increasing national output to grow and expand industrial output in Nigeria. The paper's objective is to analyze the effects of tax components on industrial output in Nigeria using historical data sourced from the Central Bank of Nigeria Statistical Bulletin (CBN), National Bureau of Statistics (NBS), and Federal Inland Revenue (FIRS) spanning from 1999-2022. The paper adopted Fully modified ordinary Least Square Method of analysis. The findings highlight the varying effects of tax components on industrial output in Nigeria, company income tax showing positive but insignificant relationship, Customs & Excise Duties exerting a negative impact on industrial output with VAT positively influencing industrial output,. The paper suggests that policymakers should focus on optimizing VAT policies. Also including improving tax collection mechanisms, streamlining procedures, and ensuring compliance, policymakers should review and evaluate the existing tax policies, review duty rates and trade policies by Lowering duties, particularly on essential inputs and machinery, and creating favourable trade conditions that can help mitigate the adverse effects of these duties on industrial output.

The role of COVID‐19 in worsening the debt sustainability in developing economies – The case of Ghana and Kenya

AbstractThe SARS‐CoV‐2 coronavirus pandemic has raised public debt sustainability issues, especially for Heavily Indebted Poor Countries (HIPC). Developing countries with limited fiscal space have had to take on significant external debts to help deal with the negative effects of the pandemic. This has led to further increases in the debt levels of these countries, with the potential to trigger a debt default. Addressing these issues, this study uses a framework for fiscal policy and public debt sustainability analysis. The results confirm the impact of the SARS‐CoV‐2 coronavirus pandemic on the debt levels of Ghana and Kenya. This study recommends the creation of domestic fiscal buffers and fiscal space toward the attainment of long‐term debt sustainability, contrary to the popular view of offering debt relief to these countries.

Foreign Development Assistance and Macroeconomic Policy Stance: The Underlying Levers of Growth in Emerging SSA Countries

The economic growth of emerging Sub-Saharan African countries is investigated in this study, with the aim of determining the relative impacts of foreign development assistance (FDA) and macroeconomic policies. The GMM and VECM models are respectively employed in estimating the long-run and short-run impacts. The short-run results indicate that FDA strongly complemented fiscal policy only, in facilitating economic growth within the period 1980–2019. The long-run results, on the other hand, show that FDA complemented both monetary and fiscal policies in driving growth. The results further reveal that exchange rate played a non-complementary role, and economic growth did not respond significantly to its own lag. Generally, the estimated impacts conform to theoretical expectations of the models. The results are also considered reliable for policy making. The possible policy measures emanating from the estimation results include sustenance of FDA inflow, reinforcement of monetary policy framework, maintenance of fiscal policy framework, enhancing efficiency of the exchange rate system, and allowing market forces to drive the economy.

Inclusive Growth and Climate Change Mitigation Programs and Policies in the ASEAN: Fiscal Implications

Abstract Addressing urgent global climate change and inequality issues has been a major challenge for the ten AMS (ASEAN Member countries) given the diversity and local agendas with divergent political, economic, and social objectives. While regional policy frameworks prioritise harmonisation and inter-regional integration outcomes over national inequality and climate change policy goals, governments typically address the latter through discretionary policy add-ons that lead to policy fragmentation and competing fiscal goals that interfere with intermediate development plans. To achieve the aspired inequality outcomes (Regional Framework and Action Plan, ASEAN Declaration, 2013) and the ratified global climate targets (Paris Treaty 2015) simultaneously, such policy outcomes and commitments to collaborative policy action will need to be aligned within an integrated policy framework at the regional or global level, and externalities of economic activity internalised into a sustainable and inclusive fiscal model. Focusing on policy design, integration and evaluation aspects, this paper tests the hypothesis that, given the urgency of these issues, the ASEAN governments devised corrective and preventive measures to systematically mitigate these externalities through intervention at the policy level and multilateral coordination at the regional and global levels to achieve pro-green and pro-equity policy outcomes with a net social surplus. Adopting a qualitative methodology, this study conducts a structured literature search and subsequent document analysis, using advanced text mining techniques to extract, contextualise and map policy-relevant themes by geopolitical scope, policy intent and outcomes. Literature evidence confirmed that the ASEAN Member States have recognised and acknowledged the urgency of climate change and inequality challenges, and that these governments intervene at the local policy level and also engage in multilateral discussions, which lack formal commitment and transparency. This study could not produce literature evidence of a systematic approach by these governments internalising mitigation mechanisms into the fiscal policy frameworks to achieve the aspired inclusive and sustainable outcomes - by design, rather than discretionary policy add-ons - and thus, the hypothesis was rejected. Keywords: Sustainable fiscal policy, inclusive growth, climate change mitigation, policy integration, multilateral intervention, document analysis.

FISCAL POLICY AND LONG-TERM ECONOMIC GROWTH: LESSONS FROM THE EURO AREA

At the beginning of 2020, the European Union embarked on a process of reviewing its macroeconomic policy strategy and economic governance framework. While the review of the monetary policy framework was approved in July 2021, the review of the fiscal policy framework was put on hold as a result of the outbreak of the covid-19 pandemic and the ensuing economic crisis. The Covid-19 crisis led to a breach of fiscal rules in the European Union and an unprecedented increase in the size of fiscal imbalances. In this context, there is a need for a radical reform of the fiscal rules still in force to allow for a more active role of national fiscal policies and to avoid the serious economic problems resulting from the fiscal austerity policies emanating from the Maastricht Treaty, the Stability and Growth Pact and the successive reforms of the latter.

An empirical study of public debt sustainability based on fiscal fatigue and fiscal space in CEMAC countries

AbstractThis paper seeks first to test whether there is evidence of fiscal fatigue in the Central Africa Economic and Monetary Community (CEMAC) countries. On the contrary, we want to investigate the impact of fiscal rules on fiscal space to see if the implementation of fiscal rules enhances fiscal space in the region. The findings show evidence of fiscal fatigue for the Republic of Congo, Equatorial Guinea, and Gabon while Cameroon, the Central African Republic, and Chad exhibit no fiscal fatigue behavior. For our second objective, while analyzing the determinants of fiscal space we found that the two fiscal rules (the balanced budget rule and debt rule) implemented in CEMAC Zone do not improve fiscal space. Therefore, there is a need for the fiscal policy stance to supervise the conduct of fiscal rules in the CEMAC region as fiscal rules themselves do not enhance the available fiscal space. Besides, we suggest CEMAC's fiscal policy authorities to integrate the expenditure rule in their fiscal policy framework to mitigate the government expenditure bias.

The Role of Human Resources in the Information System for the General Plan of Procurement and Non-Tender Procurement at the Binjai Mayor's Office

Procurement of competitive goods/services has a great response to the country's economy. In particular, within the fiscal policy framework, the procurement of goods/services aims to move the economy, increase employment, increase foreign power, and increase economic growth. The flow of the mechanism for the procurement of state goods/services will be more effective and efficient. Presidential Regulation No. 16 of 2018 requires a mechanism for the procurement of government goods/services based on a digital system. In implementation, it is necessary to look at the role of human resources (HR) in implementing SiRUP and non-tender procurement, especially in the procurement of goods and services for the regional secretariat in the city of Binjai. The research method was carried out by means of interviews and direct observation in the procurement of goods/services section of the secretariat of the mayor of Binjai. While the procurement services for the secretariat of the mayor of Binjai have started to operate but are still in the minimal category in implementation, operators/employees (HR) do not really understand how to run SIRUP because there is very little socialization and training on the implementation of SIRUP, especially in the implementation of e-Procurement and the lack of technical guidance and assistance. in the implementation of SIRUP in the procurement of goods/services.

The European Union fiscal policy framework and fiscal sustainability: challenges for the post-crisis environment

The fiscal policy framework in the European Union was originally agreed upon in the Maastricht Treaty 30 years ago. In the following years it has been supplemented (Stability and Growth Pact) and modified, influenced by the experience of its application practice and external shocks, such as the financial crisis. However, the essence of this framework remained the same - member states are obliged to conduct a disciplined fiscal policy, which, in a nutshell, is assessed by comparing the ratio of budget deficit and public debt to GDP in a given country to the reference values. Even before the outbreak of the Covid-19 pandemic, the need to change the mechanisms for disciplining fiscal policy was widely recognized. High and persistent levels of public debt, pro-cyclicality of fiscal policy, shortage of public investment and the complexity of fiscal rules and their weak enforceability are indicated as unfavorable features of public finance. In 2019 the COVID-19 pandemic came as the biggest shock to the world community since World War II. In the context of the provisions on fiscal discipline, in May 2020 the Commission and the Council activated the general escape clause of Stability and Growth Pact, for the first time ever. This has allowed member states to take the necessary fiscal measures to deal with the crisis. On 19 October 2021, the European Commission adopted a Communication relaunching the public consultation, put on hold in March 2020, on the EU?s economic governance framework. The new governance framework should be tailored to the challenges the EU is facing, including the challenge of achieving a fiscal stance that is appropriate for the euro area as a whole. There is a fairly widespread belief in the need to move away from rigid reference values, which should be replaced by solutions that ensure the sustainability of public debt in the differing circumstances of member states. The proposed options for the revision of the EU fiscal framework, although justified in theory, have a fundamental flaw - they strengthen the position of supranational institutions and, moreover, open the door to discretion and potentially unequal treatment of member states. These proposals can be seen in a broader context - the federalization of the EU, which would limit the sovereignty of nation states.

Fiscal policy and economic growth: some evidence from China

China has experienced profound economic and social changes in recent decades. During this period, China’s fiscal policy framework has been substantially reformed. The objective of this paper is to better understand the key features of the Chinese fiscal system and their impact on China’s economic growth. The study performs empirical analysis to identify the relationship between fiscal policy variables and economic growth. Its evidence suggests that local expenditures growth has a larger impact on output growth than central expenditures growth. The results also reveal that the response of output growth to anticipated changes in taxation was impeded by liquidity constraints. During the initial stages of market-oriented reform, growth of public investment in manufacturing sector contributed the most to output growth. During more recent periods, public investment in R&D made a substantial contribution. In addition, evidence indicates that long-term debt has a significant influence on China’s fiscal system, especially on government revenues.

Fiscal Rules for Natural Disaster- and Climate Change-Prone Small States

How should small states formulate a countercyclical fiscal policy to achieve economic stability and fiscal sustainability when they are prone to natural disasters, climate change, commodity price changes, and uncertain donor grants? We study how natural disasters and climate change affect long-term debt dynamics, and we propose cutting-edge fiscal policy rules. We find the primacy of a recurrent expenditure rule based on non-resource and non-grant revenue, interdependently determined by government debt and budget balance targets with expected disaster shocks. This innovative fiscal rule is classified as a natural disaster-resilient fiscal rule, which comprises a plethora of new advantages compared to existing fiscal rules. This new type of fiscal rule can be called as the third-generation fiscal rule. It encompasses natural disasters and climate change, uses budget data only, avoids the need for escape clauses, and operates on a timely basis. Our rule-based fiscal policy framework is practically applicable for many developing countries facing an increasing frequency and impact of devastating natural hazards, and climatic change.

The Politics of Labour that Underlies European Monetary Integration

AbstractThe dominant literature on the development of the EU's new economic governance regime suggests that it constitutes another step towards integration in the European fiscal policy framework. However, I argue that this limited view neglects the politics of labour that underlies European monetary integration. In the euro area competitiveness adjustment is promoted, which means in practice fostering and facilitating the confrontation of workers by employers in order to keep unit labour costs down. The new economic governance reforms consistently reinforced this policy‐making logic. Its central innovation was the systematization and 'hardening' of the macroeconomic surveillance framework beyond fiscal policy, which created new competences at the EU level to intervene in national labour market policies, including wages. This is what is actually new about the new economic governance; marking a recent key moment in European monetary integration and reinforcing the politics of labour underlying it.

The cost of banking crises: Does the policy framework matter?

This paper empirically investigates how the stringency of monetary, fiscal and exchange rate policy frameworks impacts the expected cost of banking crises. A restrictive policy framework may promote stronger banking stability, by enhancing discipline and credibility, and by giving financial room to policymakers. At the same time though, tying the hands of policymakers may be counterproductive and procyclical, especially if it prevents them from responding properly to financial imbalances and crises. Our analysis considers a sample of 146 countries over the period 1970–2013, and reveals that extremely restrictive or lax policy frameworks are likely to increase the expected cost of banking crises. By contrast, by combining discipline and flexibility, some policy arrangements such as budget balance rules with an easing clause, intermediate exchange rate regimes or an inflation targeting framework may significantly contain the expected cost of banking crises. As such, we provide evidence on the benefits of “constrained discretion” for the real impact of banking crises.