Fiscal Regime Research Articles

Lost at Sea: The Euro Needs a Euro Treasury

The euro crisis remains unresolved even as financial markets may seem calm for now. The current euro regime is inherently flawed. Recent reforms have failed to turn the dysfunctional euro regime into a viable one. The investigation is informed by the cartalist critique of traditional optimum currency area theory (Goodhart 1998). Various proposals to rescue the euro are assessed and found lacking. A Euro Treasury scheme operating on a strict rule and specifically designed not to be a transfer union is proposed here as condition sine qua non for healing the euro's potentially fatal birth defects. The Euro Treasury proposed here is the missing element that will mend the current fiscal regime that is unworkable without it. The proposed Euro Treasury scheme would end the currently unfolding euro calamity by switching policy from a public thrift campaign that can only impoverish Europe to a public investment campaign designed to secure Europe's future. No mutualization of existing national public debts is involved. Instead, the Euro Treasury is established as a means to pool eurozone public investment spending and have it funded by proper eurozone treasury securities.

Investigating the effectiveness of different forms of mineral resources governance in meeting the objectives of the UK petroleum fiscal regime

After 40 years of oil investments, the UK is now a mature oil province. During these 40 years or so, the UK Government has changed the type of governance it uses to manage its petroleum resources. This paper introduces the theoretical background to two models of mineral resource governance: proprietorial and non-proprietorial regimes. It investigates how adoption any of these two models by the UK Government has historically affected the achievement of the objectives of the UK petroleum fiscal regime. The analysis tracks the changes in the governance of the UK petroleum resources using changes in the average petroleum tax rate, and how this last influenced the achievement of the objectives of the UK petroleum Regime. The findings remain significant for their policy implications. The study concludes that the UK Government adopted a proprietorial type of mineral governance during the period 1975–1982, before changing to a non-proprietorial regime in the period 1983–2000. Since 2000 it has begun to move back towards a proprietorial style of governance. The excessive use of one type of these modes of governance leads to the objectives of the UK petroleum fiscal regime being not met.

How the Oil Revenue is Shared

Petroleum-producing countries develop fiscal regimes that have been specifically designed to maximize the government's revenue, but leaving sufficient money to attract investing oil companies. The government take varies considerably from country to country, depending upon factors such as the petroleum potential of the country, crude oil gravity expected, well production rates and costs for exploration, development, production, and operating costs and government policy. The take usually ranges between 60% and 90% of the shareable revenue with the remainder being left for the oil companies. In this study we examine the effects of royalty and taxation measures on the profitability of mature oil producing assets and the effects on funds for maintenance of production and for continuing infrastructure investments, with the following conclusions: The government take in most host countries is usually very significant. Oil price increases improve both the government and the company's take, monetarily. Increases in oil production rates may not increase the government take as a percentage but increases the government revenue monetarily. Often, insufficient revenues remain within the company to allow for the maintenance of wells and infrastructure in mature brownfield assets or for healthy reinvestment to continue the development of smaller fields, or to fund further exploration. Oil companies have choices with respect to where investments are placed, and taxation is a significant driver to determine company return on investments.

Public Debt in Albania and Some Ideas on the Good Management of Public Finances

The material aims to make an analysis of all the numerous public discussions today in Albania regarding the public debt and ways and manners to balance it. Not only in Albania but also in the Euro zone countries like Greece, Spain, Ireland, Cyprus, Portugal, the management and control of public debt is the priority of the economy because of the threat that brings the high public debt on public finances due to macroeconomic instability. Albania's public debt reached in early 2013 to 63.8% of GDP, while the countries of the region have a lower debt level and higher GDP. There is a law in Albania on the basis of which it is realized such budget management to determine the level which was 60% of government debt. This level was changed by the Albanian Parliament in December 2012 going to 62%, a change which was accompanied by heated debates among parliamentary parties and groups of economists. But what should be the level of public debt in order to give breathing to the economy, to promote employment and reduce the unemployment. How will the government be able to come out of the parliamentary elections June 2013 to face the task of improving public finances, efficiency in revenue administration and increasing the sustainability of the fiscal regime, through the implementation of reforms agreed by all political forces and public. DOI: 10.5901/mjss.2013.v4n10p332

Die lenkende Abgabe. Maßstäbe, Erscheinungsformen und Perspektiven der rechtfertigungsbedürftigen Ausnahme

Steering through charges and levies The exception, which requires justification, seen in terms of its legal criteria, typology and perspectives The concept of using charges and levies in order to influence citizens' conduct is something which has been with us since the seventeenth century at least. Policy-makers in the Federal Republic nonetheless initially focused on exerting an influence on taxpayers through classical taxes. It was not until the 1970s that steering via non-tax charges gained ground, but this mechanism has made considerable inroads since then, particularly in environmental law. Analyses of the legal boundaries imposed on steering through such charges still focus on the burden-sharing role played by taxes, very largely neglecting other types of charge. The article first of all attempts to collect the broad phenomenon of steering, non-fiscal charges into four case groups. Each group emphasises a specific tool by means of which the objective of the steering process is to be achieved. A distinction is made between avoiding, supporting, burden-equalising as well as obligation-equalising charges. On the basis of the thoroughly-researched legal questions concerned with the steering of conduct through taxes, seven legal requirements are thereupon worked out for steering through charges and levies (the special factual justification of the purpose of the steering, the extent to which the charges exceed or fall short of the financial requirement, an unambiguous legislative steering decision and logical design, budgetary consequences that are embedded in a regulatory concept, equality in the reason for and the amount of steering, no relief at the expense of public finances, proportionate financial intervention and government intervention). The freedom rights in particular pose the difficult question of the degree to which public finances are to steer by means of financial incentives, thus enabling the State to abandon its stick and take up the carrot. This seven-tier model is then applied to the case groups of steering, non-fiscal charges, and the article thus attempts in overall terms to develop a general legal system of such charges. It is stressed here that steering, non-fiscal charges are the exception in the State's fiscal regime, and that such charges are in need of a justification.

Modifying the Libyan fiscal regime to optimise its oil reserves and attract more foreign capital part 2: application to CO2‐EOR project in Libya

AbstractThis paper extends the analysis of our proposed modification to the first model of Libyan Exploration and Production Sharing Agreement (LEPSA I) to field applications. Four decision‐making models are coded in a spreadsheet program to estimate profitability indicators for two development scenarios. These scenarios are primary and secondary recovery methods with water injection and enhanced oil recovery by injecting carbon dioxide. The paper concludes that the economic profit for the foreign investor (second party) under LEPSA I was improved compared with EPSA IV. Also, Libya increased its oil reserves with a reasonable decrease of its production share. Moreover, the results showed that the profit indicators under the current production shares (cost recovery) of the fourth model of Exploration and Production Sharing Agreement (EPSA IV) were not favourable to the second party. Because of that, the second party would not be motivated to make a decision to invest any money for an oil development projects in Libya. Finally, the paper investigates how EPSA IV should be redesigned to maximise the Libyan National Oil Corporation (first party) oil reserves and give more attention to the economic objectives of the second party.

The Recent Social Policy Expansion and Its Implications for Inter‐governmental Financial Relations in China (中国近期的社会政策扩张及其对政府间财政关系的影响)

A rapid expansion of social policy has taken place in China in the first decade of the new century. While social policy expansion indicates improved wellbeing for the general public, it also imposes a big challenge for inter‐governmental relations in China under the existing fiscal regime in which the central government dominates the revenue distribution while the local governments assume the lion's share of public service provision. To fully implement all these social policy initiatives, a restructuring of central‐local financial relationships is necessary, to provide a sound basis for future social policy development in China.

Oil and natural gas prospects in South America: Can the petroleum industry pave the way for renewables in Brazil?

A large share of Brazil's current investments is concentrated in the development of petroleum resources in new frontiers. Perspectives for large offshore pre-salt fields are particularly good. However, challenges are also huge. On one hand, pre-salt resources development will draw vast amounts of economic and human resources and pose significant macroeconomic risks. On the other hand, the petroleum industry can generate multiplicative effects into the country's economy and, even more importantly, generate rents that can be diverted towards the promotion of renewable energy sources. This paper simulates the rent generation of Brazil's petroleum development up to 2030 according to: the country's current fiscal regime, projections of petroleum supply and a probability analysis of Brent price evolution, and assesses how these economic resources, if properly allocated, can pave the way for an increased use of renewables in Brazil. Findings show that an ambitious energy innovation program based on a target-oriented agency plus a program for solar development would cost less than half the minimum average annual petroleum rent free for investing in renewables between 2013 and 2030. The remaining budget could improve the security of ethanol fuel supply, by avoiding the negative impacts of sugar prices spikes on Brazil's ethanol production.

Modifying theLibyan fiscal regime to optimise its oil reserves and attract more foreign capital part 1:LEPSA Iproposal

AbstractThe currentExploration andProductionSharingAgreementIV(EPSA IV) has deficiencies that militate against increased capital investment inLibya's petroleum industry. This paper proposes an improved technique for determining the equity split called the ‘share equation’. The proposed share equation would simplify the Libyan fiscal regime and will provide an incentive for foreign oil companies to invest more during the contract period by raising their percentage share of production when they increase their capital expenditure. More capital expenditure will lead to increasing the recoverable reserves and will subsequently improve the oil recovery for individual fields and for the entire country. The share equation will change the percentage share of production automatically with any change in the oil price. It will increase the percentage share of production of theLibyanNationalOilCorporation when the price goes up, and increase the percentage share of production of the foreign oil companies when the oil price goes down. Furthermore, the share equation takes into consideration the probability of success in each of theLibyan basins. The foreign oil companies will get an increased reward when deciding to take more risks by exploration in unknown basins such as theKufra basin andCyrenaica platform. But, the share equation will eliminate the restrictive parameters likeAandBfactors, base factor andRratio in the currentEPSA IVmodel. This proposal for modifying theLibyan fiscal oil regime aims to increaseLibyan oil reserves and attract more foreign capital. By giving more flexibility to the foreign oil companies, theLibyan oil sector will get more contributions of foreign capital and technology. This will improveLibyan oil production and increase the remaining oil reserves. We call this new agreement theLibyanExploration andProductionSharingAgreementI.

No Plan B: But is There a ‘Third Way'?

AbstractThis paper reviews the argument for a slowdown in the fiscal consolidation policy of the UK government. It reviews the existing literature and the evidence of the interwar period in the UK where a recovery occurred without a relaxation of the tight fiscal regime of the period. It argues that even in a zero‐lower‐bound, the evidence for a plan B is weak. Given that there may have been significant capacity destruction, the paper suggests a third way that calls for a supply‐side framework that sets the condition for an improvement in long‐term growth and productivity.

Fiscal Decentralization and Political Budget Cycles

We analyze a problem à la Rogoff where incumbents can distort fiscal policy to signal their competency, but where fiscal policy can be centralized or decentralized. Our main focus is on how the equilibrium probability that fiscal policy is distorted in any region (the political budget cycle, PBC) differs across fiscal regimes. With centralization, there are generally two effects that change the probability of a PBC. One is the possibility of selective distortion: the incumbent can be reelected with the support of just a majority of regions. The other is a cost diversification effect, which is present unless costs are perfectly correlated across regions. Both these effects work in the same direction, with the general result that the PBC probability is lower under centralization when decentralization also involves PBC. Welfare analysis shows that voters tend to be better off when the PBC probability is lower, so voters prefer centralization when decentralization involves PBC. Our results are robust to a number of changes in the specification of the model.

The Future of the Currency Union

This note attempts a concise yet comprehensive overview of the crisis still facing the eurozone, in the areas of competitiveness, fiscal policy, and banking. The euro’s founding documents enshrined such principles as fiscal constraints, the “no bailout clause,” and assignment to the ECB of the goal of low inflation to the exclusion of monetizing national debts. Those principles have been permanently compromised. On the one hand, German taxpayers cannot be expected to agree to bailouts of profligate euro members without end. On the other hand, if they were to insist on those founding principles, the euro would not survive. It is especially important to recognize that the (predictable) impact of fiscal austerity has been to reduce output in the periphery countries, not raise it, and thereby to raise debt/GDP ratios, not lower them. The leaders have finally taken some steps in the right direction over the last year: movement toward a banking union; more adjustment time for Greece, Portugal and Spain; and ECB bond purchases. But for the countries that are to remain in the euro, much adjustment still lies ahead: more debt-reduction (painful for the creditor North) and more internal devaluation (even more painful for the uncompetitive South). As to a long-run fiscal regime that addresses the now-exacerbated problem of moral hazard, the Fiscal Compact is not enough in itself. Two innovations favored by the author are the red-bonds/blue-bonds proposal and the delegation of forecasting to independent fiscal agencies.

Fiscal Regimes in the EU

We assess the existence of fiscal regime shifts in the U.K., Germany, and Italy, using Markov switching fiscal rules. On the basis of a newly built quarterly data set, our results show the existence of fiscal regimes shifts, sometimes coupled with regime switches also regarding monetary developments. While in the UK “active” and “passive” (Leeper, 1991) fiscal regimes are somewhat clearer cut, in Germany fiscal regimes have been overall less active, supporting more fiscal sustainability. For Italy, a more passive fiscal behaviour is uncovered in the run-up to EMU.

Fiscalism as Spending and Monetary Integration

Macroeconomic policy coordination and the fi eld of micro-foundation of the macroeconomic theory have been riddled with the contest of claimed effi cacy between the Keynesian school and the monetarist school. Keynesianism upheld the predominance of fi scalism (spending) in economic stabilization on the one side. Friedman’s monetarist theory vouched for the same on the other side. As a result of the monetary and fi scal contest between the two schools a convergence between them could not be att ained. Such a divide is similar in economic science as it has been a fi asco thus far in the physical sciences between Quantum Mechanics explaining the small world phenomenon, and Relativity Physics explaining the large world phenomenon. The nonhomogenous views of a unique reality in economics, as in science, have defied the unifi cation of theories and application for the greater objective of wellbeing in an embedded social economy, beyond sheer address of the stabilization question. Our paper strides out in the new direction of a socioscientific epistemological worldview of the unifi cation of monetary and fi scal (spending) regimes in a consolidated theory of complementarities between them. The paper does this by breaking new grounds that are based on the model of organic unity of knowledge, which acts upon the simulation of well being with the method of circular causation. A review of the literature and introduction of formalism are undertaken to expound the theme of economic stabilization by means of complementing monetary and fi scal (spending) regimes in a unifi ed theory, while addressing the simulation of well-being in a learning model of unity of knowledge. The emergent methodology presents the description of a system of inter-variables circular causation relations. An extensive review of the literature is undertaken. An empirical presentation and a case study establish the validity of the well-being model with circular causation. Keywords: Monetary and spending regimes, epistemology and economics, economic stabilization, well-being.

Fiscal Regimes in the EU

Fiscal Regimes in the EU

Fiscal Regimes in the EU

Fiscal Regimes in the EU

Fiscal Regimes in and Outside the Mena Region

The 1990s ushered the world not only into a democracy wave, following the collapse of the former Soviet Union, but also into a wave of Fiscal Rules, where the number of countries adopting this fiscal regime steadily rose from only 10 in 1990 to 97 in 2009. Countries that depend on hydrocarbons, in general, tend to suffer from fiscal policies that are highly susceptible to energy price shocks. This provides incentives for implementing fiscal stabilization instruments in the form of fiscal rules. However, the resource-rich but largely democracy-deficient MENA region has been a fiscal rules-free region. Against this backdrop, this paper asks two fundamental questions: Why have MENA countries chosen not to adopt fiscal rules? And what role, if any, might have resource dependence and political institutions played in this outcome? We find that the lack of democracy and the weak systems of political checks and balances that characterize MENA countries appear to have outweighed the positive impacts of oil resources, such that fiscal instability persists despite ample oil revenues. The nascent Arab democracy spring might tip the scale in favor of adopting fiscal rules by emerging democratic governments in the region. However, stronger systems of political checks and balances are also needed and, unfortunately, are not necessarily a certain outcome of the current political changes. A move toward inflation targeting regimes, as proposed for Tunisia and Egypt, might also provide additional impetus for adopting fiscal rules as the evidence of Chile and other inflation-targeting countries suggests.

Monetary-Fiscal Policy Interactions: Interdependent Policy Rule Coefficients

In this paper, we formulate and solve a New Keynesian model with monetary and fiscal policy rules whose coefficients are time-varying and interdependent. We implement time variation in the policy rules by specifying coefficients that are logistic functions of correlated latent factors and propose a solution method that allows for these characteristics. The paper uses Bayesian methods to estimate the policy rules with time-varying coefficients, endogeneity, and stochastic volatility in a limited-information framework. Results show that monetary policy switches regime more frequently than fiscal policy, and that there is a non-negligible degree of interdependence between policies. Policy experiments reveal that contractionary monetary policy lowers inflation in the short run and increases it in the long run. Also, lump-sum taxes affect output and inflation, as the literature on the fiscal theory of the price level suggests, but the effects are attenuated with respect to a pure fiscal regime.

Monetary-Fiscal Policy Interaction: Interdependent Policy Rule Coefficients

In this paper, we formulate and solve a New Keynesian model with monetary and fiscal policy rules whose coefficients are time-varying and interdependent. We implement time variation in the policy rules by specifying coefficients that are logistic functions of correlated latent factors and propose a solution method that allows for these characteristics. The paper uses Bayesian methods to estimate the policy rules with time-varying coefficients, endogeneity, and stochastic volatility in a limited-information framework. Results show that monetary policy switches regime more frequently than fiscal policy, and that there is a non-negligible degree of interdependence between policies. Policy experiments reveal that contractionary monetary policy lowers inflation in the short run and increases it in the long run. Also, lump-sum taxes affect output and inflation, as the literature on the fiscal theory of the price level suggests, but the effects are attenuated with respect to a pure fiscal regime.

The Macroeconomic Effects of Natural Resource Extraction: Applications to Papua New Guinea

To investigate the effects on Papua New Guinea’s economy of substantial liquified natural gas revenues arriving in 2015, we employ a model to examine the macroeconomic effects of a scalingup of natural resource windfall revenues and the implications for a variety of policy responses. The model is a multi-sector dynamic stochastic general equilibrium (DSGE) model, and features components that allow for a detailed study of the effects of both fiscal and monetary policy in response to a positive shock to the mineral resource value of a country. The model contains tradable, non-tradable, and mining sectors, as well as an independent central bank and fiscal authority. We calibrate the model to the current economy of Papua New Guinea and run a suite of policy simulations. We find that macroeconomic effects from a resource boom typically associated with Dutch Disease effects such as a real appreciation and a fall in tradable sector production stem largely from the non-tradable component of government spending. The central bank can offset the real appreciation, but not without crowding out the private sector. A sovereign wealth fund (SWF), combined with a smooth capital spending path, entails the best means of dealing with macroeconomic volatility and maintaining a stable fiscal regime.