Fiscal Sustainability Research Articles

Self-benefits, fiscal risk, and political support for the public healthcare system

The rapid aging of the population has become increasingly challenging for public healthcare systems. To ensure sustainability, governments must persuade their citizens to accept a larger burden, which is a difficult task. This study explored whether informing individuals of self-benefits from the healthcare system could be a solution. We first constructed a two-period overlapping generations model and hypothesized that doing so could facilitate political support for larger healthcare insurance contributions; however, this effect is reduced when people are concerned about fiscal sustainability due to a declining fertility rate. To test these hypotheses, we conducted an online survey experiment in Japan, in which the treatment group was informed of the benefits from the public healthcare system. We found that the treatment had no effect on average but augmented support for a larger burden among respondents who were unaware of fiscal unsustainability. Furthermore, this positive effect on optimistic respondents reduced once they were informed of the fiscal risks. Moreover, we analyzed the heterogeneity of the treatment effects depending on time and risk preferences.

An Analysis of the Chinese Pension System Pointing to the Urgent Need for Reform

The pension system in China exhibits variations in the level of benefits provided to the elderly, influenced by their residential and employment status. This article applies the welfare-state typology commonly used in developed countries to analyze the Chinese pension system. The analysis reveals that the amount of pension received by individuals is determined by their place of residence and the employer type, resembling the characteristics of the conservative type in international welfare-state typology. For instance, in 2015, former public servants received approximately four times the pension income compared to those from the nonstate sector. These disparities result in rural elderly individuals who retired from the private sector facing meager income during their retirement phase. Consequently, immediate measures are needed to establish a basic safety net for retired individuals lacking a basic pension, while medium- to long-term reforms are required to instill fiscal sustainability akin to the liberal Western model. This research highlights the necessity of addressing the inequities within the Chinese pension system, calling for both short-term and long-term reforms to ensure adequate support for the retired population. By drawing upon insights from international welfare-state typologies, this study provides valuable recommendations for policymakers to establish a more inclusive and sustainable pension system in China.

Economic Viability of Cutting-Edge Genetic Treatments: Balancing Innovation and Fiscal Sustainability in India's Healthcare Sector

Recent breakthroughs in genetic treatments offer unprecedented opportunities for addressing previously incurable conditions, but their astronomical costs present significant challenges to healthcare systems globally, particularly in developing economies like India. This comprehensive study conducts an in-depth economic analysis of three recently approved genetic treatments, meticulously comparing their long-term financial impacts with traditional care methods in the Indian healthcare context. Utilizing advanced economic modeling techniques and drawing from a diverse array of data sources including clinical studies, real-world evidence, and Indian health databases, we evaluate the treatments' cost-effectiveness, budget impact, and potential for long-term savings over an extended 30-year period. Our findings reveal a complex economic landscape: while these cutting-edge treatments require substantial initial investments, ranging from Rs. 10 crore to Rs. 18 crore per patient, they may offer significant long-term economic benefits in specific scenarios. The study goes beyond mere cost analysis, exploring the broader economic implications of these treatments, including their potential impact on workforce productivity, caregiver burden, and the development of India's biotechnology sector. We propose a comprehensive framework for assessing the economic sustainability of such high-cost treatments, taking into account both immediate budgetary constraints and potential long-term societal benefits. Furthermore, we discuss detailed policy implications for the integration of these treatments into India's healthcare system, emphasizing the need for innovative financing mechanisms, value-based pricing models, and adaptive health technology assessment methods. This research aims to provide policymakers, healthcare providers, and industry stakeholders with crucial insights to navigate the complex intersection of medical innovation and economic sustainability in the rapidly evolving landscape of genetic treatments.

EFFECT OF SUBNATIONAL PUBLIC EXPENDITURE ON STATES’ FISCAL SUSTAINABILITY IN NIGERIA

Objectives: The study examined the effect of subnational public expenditure on states’ fiscal sustainability in Nigeria. Specifically, the study examined the effect of capital expenditure and recurrent expenditure on states’ fiscal sustainability in Nigeria. Methods Ex-post facto research design was adopted to carry out the research for the period 2016-2022. The panel data were collected and sourced from Audited Financial Statements of subnational, CBN statistical Bulletin, CBN Annual report and accounts, other CBN publications, publications of the National Bureau of Statistics (NBS), and Ministry of Finance (MOF) Medium Term Fiscal Framework and other publications of 36 states. Panel regression was used to analyse the hypothesis significant effect between subnational public expenditure and states’ fiscal sustainability in Nigeria with the aid of E-views 12. Results: The study found that capital expenditure has a significant effect on states’ fiscal sustainability in Nigeria. The study also found that recurrent expenditure negatively affects states’ fiscal sustainability in Nigeria. Conclusion: The study recommends that the state governments of Nigeria should adhere strictly to the implementation of capital expenditure so as to increase the level of infrastructural and productive base in Nigeria which will have the capacity to stimulate economic growth and create employment. Also, state governments should decrease spending, particularly regarding recurrent expenditure, to reduce the cost of governance in the country. This is because our results indicated that an increase in government recurrent expenditure reduces the level of the sustainability index.

TAX BUOYANCY IN MAJOR STATES IN INDIA

In the world of fiscal policy, tax elasticity and buoyancy are crucial factors shaping a country's financial health. Tax elasticity measures how much tax revenue changes when national income shifts, showing how flexible the tax system is naturally, without deliberate policy changes. This flexibility helps stabilize revenue, reducing the need for constant tweaking of tax policies. On the other hand, tax buoyancy reflects how tax revenue responds to economic shifts and intentional changes in tax policies. It acts like a gauge, indicating how effectively taxes adjust to economic ups and downs and how well policy decisions influence revenue. Low buoyancy suggests that there might be flaws in the tax system, prompting policymakers to rethink and improve tax strategies to better fit economic realities. For a country like India, where tax revenues are essential for financing public spending, understanding these metrics is critical. The buoyancy coefficient compares the growth of actual tax revenue to national income growth, providing insights into how successful fiscal policies are in boosting tax revenues. Meanwhile, the elasticity coefficient shows how responsive the tax system is to changes in national income, revealing its potential to generate more revenue as the economy grows. Analyzing these metrics gives policymakers a detailed view of fiscal sustainability and economic stability. It helps them make informed decisions when designing tax policies, ensuring that the government can maximize revenue while allowing the tax system to adapt smoothly to economic changes. A balanced approach that considers both elasticity and buoyancy is key for India's fiscal strategy, ensuring a well-coordinated financial performance that aligns with national economic goals. KEYWORDS :- Tax Buoyancy, Tax Elasticity, Fiscal Policy, Tax Revenue, NITI Aayog, RBI (Reserve Bank of India), VAT (Value Added Tax), GST (Goods and Services Tax).

INVITED PAPER — INTER-GENERATIONAL IMPACTS OF SINGAPORE’S BUDGETARY RESPONSES TO COVID-19: GENERATIONAL ACCOUNTING FRAMEWORK

Singapore’s rapidly aging population poses significant challenges to the government’s long-term fiscal sustainability as it structurally affects government revenue and expenditure. Amidst the demographic trends, total government spending has skyrocketed to unprecedented amounts in 2020 in response to the COVID-19 pandemic. This paper evaluates Singapore’s fiscal sustainability and intergenerational fiscal impacts through the lens of generational accounting and actuarial analyses, before and after COVID-19. Our model predicts a pre-COVID absolute intergenerational gap of S$512 thousand between future generations and current newborns, implying that there is considerable intergenerational inequity. This gap increases by a further S$67 thousand after factoring in COVID-19’s impact on government net spending and short-term fertility rates. Fiscal balance can be restored in the short term and intergenerational equity in the long term, after incorporating key policy changes such as Goods and Services Tax (GST) hike and carbon tax increases.

Exploring Public Finance Policies: A Qualitative Inquiry into Fiscal Policy Analysis, Government Financial Management, and Public Sector Financial Health

This study explores the complexities of public finance governance, focusing on fiscal policy analysis, government financial management, and public sector financial health. Employing a qualitative research methodology, the study aims to analyze existing literature to uncover key themes, trends, and challenges in these domains. Through systematic literature review and thematic analysis, the research synthesizes insights from diverse disciplinary perspectives, including economics, public administration, and political science. Findings highlight the significance of fiscal policy as a countercyclical tool for promoting macroeconomic stability, the importance of effective financial management in ensuring transparency and accountability, and the multidimensional nature of public sector financial health. Challenges such as corruption, inadequate institutional capacity, and political interference are identified, underscoring the need for proactive measures to strengthen governance integrity. Innovative approaches, including accrual accounting standards and performance-based budgeting frameworks, offer promising solutions to enhance governance effectiveness and resilience. The study also emphasizes the role of adaptive governance strategies and agile financial management frameworks in responding to unforeseen crises while maintaining long-term fiscal sustainability. Future research directions include exploring the differential impacts of fiscal policy interventions, assessing the long-term implications of the COVID-19 pandemic, and examining the role of international cooperation in addressing global fiscal challenges.

Sovereign risk dynamics in the EU: The time varying relevance of fiscal and external (im)balances*

Acknowledging the potential detrimental impact that twin-deficits can have on sovereign risk, this study uses a two-step approach to assess the impact of fiscal and external sustainability on sovereign risk dynamics for a panel of 27 European economies from Q4 2001 to Q3 2022. We first estimate a country-specific time-varying measure of fiscal sustainability, based on the cointegration between government revenues and expenditures and external sustainability, derived from the cointegration of exports and imports. We then use these time-varying coefficients to assess their impact on sovereign risk, proxied by 10-year CDS and CDS spreads (against the US), employing a Weighted Least Squares (WLS) analysis. Notably, we show that an improvement of both fiscal and external sustainability lead to a reduction in sovereign risk. This phenomenon is particularly pronounced for countries experiencing an upward trajectory in public debt levels.

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.

How “baked in” ideas hinder ideational robustness: the International Monetary Fund and “fiscal space”

Abstract This paper brings insights into ideational robustness to bear on the International Monetary Fund (IMF) fiscal policy thinking. It advances understanding of both the IMF and the concept of ideational robustness by focusing on economic ideas as they are put into practice by expert economic institutions. The IMF has traditionally enjoyed a reputation as a hawkish enforcer of neoliberal doctrine and conservative fiscal discipline, foregrounding deficit bias and fiscal sustainability concerns. Capitalist crises, notably the 2008 crash and COVID, have seen public debt increase while rendering growth and stability increasingly elusive. This turbulence has spurred some rethinking of Fund fiscal ideas. The IMF has added the new concept of fiscal space to its policy commentary and advocacy. Fiscal space seeks to reconcile economic stabilization and supporting growth to the Fund’s overarching concern to maintain fiscal discipline and sustainability. A focus on how ideas are put into practice shows that long-standing Fund fiscal priorities are hardwired into operational frameworks, curtailing the new emphasis and adaptions. Thus, key to the institutional conditions of IMF fiscal policy actions are “baked in” economic ideas. These are operationalized through economic models, analytical tools, fiscal evaluation frameworks, and standard operating procedures. The “politics of economic method,” in the form of deliberation and contestation over different normative ideas that can underpin alternative constructions of such policy frameworks, plays an important role in shaping which economic ideas come to matter, and how, for the IMF. The Fund’s “fiscal space” episode can be interpreted as a quest for ideational robustness (through increased flexibility), which thus far remains unrealized due to the crucial role of these mechanisms, institutional conditions, and ideational path dependencies.

Tethered Public Administration Reform in Libya

This paper explores the challenges and impediments faced in achieving comprehensive administrative reform. The study examines key aspects of the Libya administrative structure that was raised in a workshop organized by the UNDP. It includes the public administration structure, decentralization, fiscal sustainability, economic development, digital transformation, and e-government. It explores the problems and issues impacting reform efforts, such as the paucity of political will, limited reformative capacity, bureaucratic resistance, and the prevalent issue of ghost employment. The research reveals that Libya's public administration system is in dire need of transformative reforms to improve governance, enhance service delivery. Decentralization of administrative powers and resources emerges as a crucial factor for local development and effective public service provision. This research outlined the complexities surrounding public administration reform in Libya and offers guidance for policymakers, practitioners, and scholars to navigate these challenges and drive positive change in the Libya's governance and administrative systems.

The impact of floods and cyclones on fiscal arrangements in India: An empirical investigation at the sub-national level

Disasters can inflict severe devastation on communities and territories at all levels of authority. With regard to the connection between floods and cyclones and their financial impact, this study seeks to refocus national and subnational research efforts. The consequences of floods and cyclones on India's budget and economy at the subnational government level are examined in this study. The study creates a physical disaster intensity index to evaluate the impact on fiscal sustainability after disasters, as the estimated damages statistics are unreliable. Between 1995 and 2018, the study integrated disaster intensity index and budgetary data to produce a panel dataset of 25 Indian states. Using Panel Vector Autoregression, the study discovers that a state's overall government expenditure goes up, and its budget deficit worsens when floods and cyclones strike. By further breaking up the fiscal variables, we could pinpoint specific areas where disasters have exerted their influence, especially in terms of decreased own tax revenue, increased social sector expenditure and capital outlay, increased outstanding liability, increased primary deficit, and reduced transfers from the centre over time. It observed that after disasters, states more prone to disasters have higher volatility in revenue generation and expenditure patterns, and a sharp increase in outstanding liabilities. This suggests a greater reliance on borrowing for disaster recovery. Less-prone states, however, show higher utilization rates of disaster relief funds, indicating better resource allocation for disaster response and recovery. The study highlights that state governments rely highly on ex-post Disaster Risk Financing instruments, especially debt financing, as national relief and response funds couldn't manage the increased spending and budget deficit from disasters. This study thus helps policymakers and governments look for more proactive disaster financing instruments and make changes in India's fiscal framework to integrate climate change considerations.

The Impact of Fiscal Policy Uncertainty on Fiscal Sustainability—Based on China’s Empirical Data

The Impact of Fiscal Policy Uncertainty on Fiscal Sustainability—Based on China’s Empirical Data

The impact of local government bonds on land-leasing behaviours and the economic consequences: evidence from the self-issuance reforms in China

ABSTRACT Under the 1995 Budget Law, land finance, rather than local government bonds (LGBs), played a critical role in bridging fiscal gaps for Chinese local governments. This paper examines the impact of the self-issuance (SI) reform of LGBs from 2011 on land leasing using county-level data from 2000 to 2019 combined with land parcel data and business registration databases of China. Findings reveal that, firstly, SI reforms initially reduce land leasing but increase it by 24.86% three years later, with a preference for commercial and residential land. Reforms also raise commercial and residential land leasing prices by 14.22% and do not compel lower prices for industrial land. Secondly, based on repayment obligations, the self-issuance and central-government-repayment (SICGR) mode alleviates fiscal pressure, favouring commercial and residential land leasing, while the self-issuance and self-repayment (SISR) pattern enhances fiscal sustainability and leads to more industrial land leasing. Thirdly, mechanism analysis suggests that SI reforms increase debt burden and decrease fiscal self-sufficiency, primarily through land tender, auction, and listing mechanisms, resulting in unbalanced regional development. This research highlights the need for sustainable development patterns under the New Budget Law of 2015, balancing fiscal revenues, the land market, and local government debts.

Revenue structure and budgetary choice in Nigeria: implication for fiscal sustainability of the states government

Revenue structure and budgetary choice in Nigeria: implication for fiscal sustainability of the states government

A Contituição Financeira das renúncias fiscais: breves notas sobre o princípio da legalidade específica na concessão de benefícios tributários

The article discusses the relationship between tax rules and the 1988 Federal Constitution, focusing on the granting of tax benefits. It highlights the importance of understanding the role of the Constitution in granting these benefits to guarantee their legality and effectiveness, without compromising financial stability and tax equity. Divided into two parts, the first analyzes the Financial Constitution and its role in the State’s financial order, especially in tax exemptions. The second part explores the principle of legality of tax benefits and their constitutional implications, considering fiscal sustainability and tax equality.

European Financial Markets Integration and the Politics of Credit Rating Agencies: An Econometric Approach to Study Microeconomic Dynamics and Sustainability

Abstract On sovereign credit default swaps markets, contagion serves as a sobering reminder of the interconnectedness of global financial systems. Like ripples in a pond, the impact of sovereign default or downgrades can cascade across borders, highlighting the intricate web of dependencies among nations. Utilizing sovereign CDS spreads between 2006-2020 on local European markets, the study employs an event study methodology to assess the effects of rating changes on CDS spreads, focusing on negative events such as sovereign rating downgrades. The findings reveal that negative events have a greater impact on the CDS market than positive events, abnormal returns are higher during economic crises, and states with public debt exceeding the Maastricht criteria experience higher abnormal returns. These results suggest that investors are sensitive to adverse news and risk factors, see opportunities for profit during economic turmoil, and closely monitor fiscal sustainability metrics. Understanding and managing contagion risk in these markets requires not only vigilance but also cooperation and coordination among policymakers and market participants.

Fiscal Sustainability of Latin American Countries Under Cross-Dependency and Structural Breaks

Fiscal Sustainability of Latin American Countries Under Cross-Dependency and Structural Breaks

The pursuit of welfare efficiency: when institutional structures turn ‘less’ into ‘more’

Addressing current socio-economic crises strains public budgets and may threaten fiscal sustainability. Particularly in the welfare sector, where high expenditures meet poor controllability, efficient resource usage is essential to ensure future governments’ capability to act while alleviating current problems. Consequently, this paper asks: why are some countries more efficient in translating social expenditure into welfare outcomes? To answer this question, it is argued that efficiency is a matter of institutional structures and their vertical policy-process integration (VPI): efficiency depends on institutional structures’ capability to (1) ensure policymakers’ responsibility and to (2) provide coordinated feedback, thus pushing for considerate and informed resource use. Analysing the effect of VPI on the relationship between welfare efforts and social outcomes in 21 OECD countries over three decades, the results show that VPI can not only turn ‘less’ into ‘more’, but it also compensates for performance losses in the face of spending cuts.

Sustaining Prosperity: Exploring Fiscal and Financial Sustainability in the Context of Dynamic Fiscal Policy

Purpose: This study explores how fiscal policy and financial sustainability support sustainable economic prosperity amid global instability. It examines the impact of government taxation and spending decisions on economic outcomes, aggregate demand, employment, inflation, social welfare, infrastructure development, and income inequality. Financial sustainability is analyzed through prudent fiscal management and debt sustainability, focusing on long-term government finance viability and mitigating fiscal risks. Research Design and Methodology: The study employs a qualitative methodology, incorporating a comprehensive literature review of theoretical works, empirical studies, and policy analyses. Data is collected through systematic reviews of scholarly articles, books, policy reports, and official publications. Thematic analysis techniques, including coding and categorization, synthesize findings, with reflexivity to consider assumptions and biases. Findings and Discussion: The research underscores the importance of flexibility and adaptability in fiscal policy, highlighting automatic stabilizers and countercyclical policies for economic stabilization and sustainable growth. Prudent debt management, including debt restructuring and fiscal consolidation, is vital for mitigating fiscal risks and ensuring debt sustainability. The findings emphasize integrating fiscal sustainability with broader economic and social goals and the need for institutional reforms and international cooperation to enhance fiscal governance. Implications: The study provides insights for policymakers on the importance of fiscal prudence and sustainability. It advocates for a balanced approach that addresses short-term stabilization and long-term goals and calls for institutional reforms to improve fiscal discipline, transparency, and accountability. By integrating interdisciplinary perspectives, policymakers can develop resilient and sustainable fiscal policies that promote long-term prosperity and social equity.