Fiscal Sustainability Research Articles

The fiscal space and the fiscal stimulus during crisis in the Western Balkans

The fiscal space of the Western Balkan 6 (WB6) economies has been significantly tested by recent crises, including the COVID-19 pandemic and the Energy and Food Price Crisis. This paper investigates the role of pre-crisis fiscal space in shaping fiscal stimulus measures during crises, by endogenizing an expanded set of fiscal space measures. Results reveal that WB6 nations, possessing some fiscal space before previous crises, encountered limitations in formulating and implementing fiscal stimulus measures amid subsequent crises. With fiscal space largely utilized during and post-pandemic, the ability to implement fiscal stimulus during the recent Energy and Food Price Crisis has been considerably restricted. These findings underscore the importance of building fiscal buffers during non-crisis times to maintain resilience for unforeseen challenges. The paper highlights the need for forward-looking fiscal policies, emphasizing the potential adverse effects of overly generous fiscal packages on fiscal sustainability, which could hamper future crisis response capabilities.

Supporting voluntary prolonged labour market participation through fiscally sustainable schemes

The article deals with the issue of fiscal support of participation of the senior population in the labour market. The main reasons for addressing this issue are not only the ageing population and the shortage of people on the labour market in Czechia but also the need to improve the fiscal revenues and fiscal sustainability in general. The article aims to define rules for setting employees? tax burden that would motivate older workers to remain on the labour market after reaching the statutory retirement age and to demonstrate the impact of these measures on the fiscal yield. The article contains model calculations relating to specific proposals for addressing this situation. We show why and how those fiscal measures work, first at a theoretical level of individual variables, and then we assess the impact on public finance if these measures are introduced.

Análisis comparativo de las reformas tributarias para el cálculo del impuesto a la renta de personas naturales bajo relación de dependencia

This investigation examines the evolution of Income Tax payments for individuals engaged in dependent employment in Ecuador over the years 2021, 2022, and 2023. Utilizing a descriptive and quantitative methodology, the study conducts a comprehensive review of the tax reforms enacted during this period, emphasizing the Organic Law of Simplification and Tax Progressivity, the Organic Law for Economic Development and Fiscal Sustainability post-COVID-19 pandemic, and the Family Economy Strengthening Law. The research centers on the impact of these reforms on the computation and payment of income tax, specifically addressing the elimination of personal expense deductions and the introduction of new rebates linked to the basic family basket and family dependents. The findings indicate a substantial increase in the tax liability for the year 2022 relative to 2021, attributed to the removal of deductions. Conversely, in 2023, the implementation of new rebates significantly mitigated the tax burden, particularly for taxpayers with family dependents. This analysis underscores the critical role of fiscal policies in ensuring the equity and efficiency of the tax system, providing a robust foundation for future reforms aimed at enhancing fiscal sustainability and taxpayer welfare.

Does Monetary Policy Influence Euro Area Fiscal Sustainability?

Does Monetary Policy Influence Euro Area Fiscal Sustainability?

The Effect of Corporate Tax on The Financial Performance of Business Orga Nizations in Rwanda (Case Study: Rwanda Stock Exchange)

The performance of Rwandan business groups with regard to corporation tax is examined in this study. The research recognizes that taxes play a critical role in shaping both the corporate environment and the macroeconomic environment. This study attempts To assess the impact of corporation taxes on stock return within business organization in Rwanda, To assess the effect of corporate tax on return on Investment in business organization in Rwanda and To assess the effect of corporate tax on leverage in business organization in Rwanda in order to offer important insights into the intricate interaction between taxation policies and company results in Rwanda by examining the link between corporate tax rates and several performance metrics such return on equity, return on investment, and leverage. The study uses a quantitative methodology and financial data from a sample of Rwandan companies in a variety of industries us previous reports from Rwanda Stock Exchange. To evaluate how corporate tax affects various performance measures, statistical approaches, such as Pooled Regression Model Utilizing E-views, were used. The study also takes into account how government regulations and tax breaks affect the choices and tactics used by businesses. The results of this research is anticipated to advance knowledge of how CT policies affect the performance and competitiveness of businesses in Rwanda since The coefficient for at a standard significance level, CORP_ TAX is statistically significant (p- value = 0.0403 0.05).), which is sufficient evidence to show that corporation tax has a significant impact on leverage in this scenario. This knowledge can assist policymakers in crafting tax policies that promote economic growth while ensuring fiscal sustainability. Furthermore, business leaders can gain insights into optimizing their tax planning and financial strategies in response to the prevailing tax environment. The research on how corporate taxes affect how well businesses function in Rwanda deals with a complicated and dynamic topic of study that has ramifications for many different stakeholders. The research aims to contribute to the larger scholarly discussion on taxes and company success, give practical insights for business organisations, and inform government.

Фінансова спроможність територіальних громад у контексті забезпечення соціально-економічного розвитку

The aim of the article is to determine the economic essence of the financial capacity of territorial communities and to clarify its role in ensuring social and economic development. The article discusses approaches to the economic essence of the financial capacity of territorial communities. The authors disclose the essence of this economic category as the ability of a territorial community to form the amount of budget revenues, which is sufficient and adequate to the expenditure part of the budget, from which the list of public goods and services defined by law, which meet the established national standards and criteria, is financed; also to promote the processes of socioeconomic development of the community. The structure of financial resources of the territorial community is considered. It is determined that it is local taxes and fees that ensure the financial autonomy of local self-government bodies (LSGB). The need to strengthen the fiscal sustainability of the budgets of territorial communities as an element of ensuring their financial capacity is substantiated. One of the directions of implementation of this is to increase the fiscal significance of the property tax by improving the mechanism of its administration. The main determinants of ensuring the socioeconomic development of territories have been identified, the main place among which belongs to financial instruments. The relationship between the financial capacity of territorial communities and the Sustainable Development Goals (SDGs), which can be achieved at the local level, is studied. With the help of the Ishikawa diagram, measures to achieve SDG 8 (Decent Work and Economic Growth) are allocated, including stimulating the employment, ensuring the sustainable growth of the gross regional product, increasing the production efficiency and creating the financial opportunities for economic self-realization in relation to the financial capacity of the territorial community. It is noted that the use of financial preferences in order to stimulate economic activity in a territorial community can in some way reduce its financial capacity in the current period, but is aimed at increasing it in the medium and long term and strengthens the fiscal sustainability of local budgets.

Budgetary Constrained Governments: Drivers of Time Varying Fiscal Sustainability in OECD Countries

Budgetary Constrained Governments: Drivers of Time Varying Fiscal Sustainability in OECD Countries

Beyond the Centre: Tracing Decentralization's Influence on Time-Varying Fiscal Sustainability

Beyond the Centre: Tracing Decentralization's Influence on Time-Varying Fiscal Sustainability

Asymmetric Response of Fiscal Sustainability to the Financial Development in Nigeria

This study examines the asymmetric response of fiscal sustainability to financial development in Nigeria while augmenting the model with exchange rate volatility within the non-linear autoregressive distributed lag framework. The empirical evidence reveals that positive and negative shocks in domestic credit to the private sector result in significant unsustainable fiscal balance and fiscal sustainability both in the short run and long run respectively. Increase and decrease in annual market capitalization have a positive and negative significant impact on the fiscal sustainability in the long run respectively. Exchange rate devaluation or depreciation has a devastating effect on fiscal sustainability both in the short run and long run. Wald test revealed that credit to the private sector and annual market capitalization have an asymmetric effect on fiscal sustainability both in the short run and long run, while the exchange rate has no asymmetric effect on fiscal sustainability. For a sustainable fiscal stance, we recommend a financial model that channels credits towards productive activities to boost GDP as this will go a long way in reducing the debt-to-GDP ratio and enhancing solvency.

Tax Authorities and Local Government Development in Poland

Purpose of the study: The purpose of this article is to examine the influence that tax authorities have had on the growth and progress of local governments in Poland. Through an analysis of the financial autonomy, degree of decentralisation, and local tax policy of Polish municipalities, this research endeavours to illuminate the correlation between tax authorities and the growth of local governments in Poland.
 Methodology: This article conducts a comprehensive literature review on the subject of local tax competition studies in Poland. In addition, empirical experiments conducted on Polish data to determine the concept's applicability throughout the region are included.
 Main findings: Based on the analysis, Poland holds a considerable level of financial autonomy, which is attributed to its authority in determining local tax rates and its freedom to finance investment initiatives. Moreover, research has revealed that the fiscal policies implemented by neighboring municipalities in Poland exert a substantial influence on the choices made by local legislators. This suggests that competition and local tax policy have a significant impact on the evolution of local administrations across the nation.
 Application of the study: The findings of this study have significant implications for policymakers and local authorities in Poland. Understanding the impact of tax authorities on the development of local governments can help in formulating effective fiscal policies and strategies for sustainable development. By recognising the influence of tax regulations and revenue diversification on fiscal sustainability, policymakers can make informed decisions regarding local tax policies and financial autonomy.
 Originality/Novelty of the study: In the article, the author emphasised the examination of the impact of tax authorities on the development of local governments in Poland, particularly in the context of the limited tax autonomy of Polish local authorities. The study delves into the unique challenges and opportunities that arise from this restricted tax autonomy and how it influences the fiscal sustainability and development of local governments in the country. Additionally, the analysis of the effects of municipal tax policy, including the influence of neighbouring municipalities' tax rates on local politicians' decisions, provides valuable insights into the dynamics of tax competition and its implications for local governance in Poland.

Fiscal Balance Factors of the Local Government: Panel Data Evidence from OECD Countries

Fiscal balance is perceived as a principal measure of fiscal sustainability in the local government. It also affects the budgetary response to a potential recession, determining a fiscal distress and a financial resilience. Thus, the economists conduct studies to identify factors influencing the fiscal balance at the local public level. Therefore, the aim of the paper is to examine fiscal, socio-economic, political, and institutional factors which affect the level of fiscal balance of the local government sector in Gross Domestic Product (GDP) on the basis of the OECD countries in the period 2007–2021. In the study both panel data models with fixed effects (FE) and random effects (RE), dynamic panel data models (GMM), as well as panel quantile regressions with fixed effects were estimated. As a result, the paper confirms that fiscal balance of the local government in GDP is affected by fiscal decentralisation on the expenditure side, an investment activity, a change in the debt ratio, an inflation, a change in the unemployment rate, the Human Development Index, the trade openness, the GDP growth, and local elections. What was also found was a statistically significant influence of the corruption in the case of the panel quantile regression with fixed effects. In addition, the Mann-Whitney U test, the Kruskal-Wallis test, and the Dunn test were applied to identify whether the level of fiscal balance of the local government sector in GDP had the same distribution in Central and Eastern European (CEE) countries and other OECD countries.

The macroeconomics of establishing a basic income grant in South Africa

AbstractThis paper quantifies the effect of fiscal transfers on the trade‐off between social relief and debt accumulation and discusses the economic growth and fiscal implications of different combinations of expanded social support and funding choices. Given South Africa's already high level of public debt, the opportunity to fund a basic income grant through higher debt is limited. Using a general equilibrium model, the paper shows that extending the social relief of distress grant could be fiscally feasible provided taxes rise to fund such a programme. Implementing such a policy would, however, have a contractionary impact on the economy. A larger basic income grant (even at the level of the food poverty line) would threaten fiscal sustainability as it would require large tax increases that would crowd‐out consumption and investment. The model results show that sustainably expanding social transfers requires structurally higher growth, which necessitates growth‐enhancing reforms that crowd‐in the private sector through, for example, relieving the energy constraint, increasing government infrastructure investment and expanding employment programmes.

Measuring fiscal policy sustainability in developing Asia: what does the Markov Switching Augmented Dickey-Fuller Test tell us?

This paper measures fiscal sustainability in 22 developing Asian countries for the period 1999–2017. Previous literature generates conflicting results: one paper applies the usual stationarity and cointegration tests and finds that fiscal policy is sustainable but in weak form. Another paper employs a fiscal reaction function and finds that fiscal policy is unsustainable. This paper uses an expanded version of the Markov Switching Augmented Dickey-Fuller test (MS-ADF), which remedies the shortcomings of conventional stationarity tests to provide more statistical power in the presence of nonlinearities and structural breaks. The MS-ADF has never been applied to this set of countries. Results show that the majority of the countries have “uncertain” debt trajectories, not definitively sustainable or unsustainable but somewhere in-between. This is a more nuanced picture of the debt trajectories in the region relative to what is obtained using the established methods. A more nuanced assessment could lead to more suitable policy corrections.

Assessing Fiscal Sustainability in the Landscape of Economics Research

This scientometric analysis delves into the current trajectory and anticipated prospects of assessing fiscal sustainability, emphasizing methodologies, trends, and pivotal literature in this critical economic realm. This study analyzed 324 studies from Scopus and Web of Science databases to generate the dataset through scientometric networks, using VOSviewer and Bibliometrix tools. Through a comprehensive review of scientific literature, this research traces the developmental trajectory of fiscal sustainability, trend topics, influential studies, and key contributors employing bibliometric and scientometric tools. The study maps the landscape of fiscal sustainability exploration, underscoring an evolving shift towards interdisciplinary methods encompassing environmental, social, and political factors. Furthermore, the keywords analysis accentuates three emergent trends, mainly (i) the relation between fiscal sustainability and economic growth, (ii) the methodologies and models for assessing fiscal sustainability, and (iii) demographic concerns and their impact on fiscal sustainability. This research provides insights into the evolving terrain of fiscal sustainability exploration and anticipates promising avenues for further studies. The examination reveals the significance of methodologies such as panel data, multicointegration analysis, probabilistic debt analysis, Markov-switching models, and wavelets analysis in assessing fiscal sustainability. By offering a comprehensive overview, this analysis aspires to direct forthcoming inquiries and contribute to the ongoing discussion surrounding the assessment of fiscal stability.

Fiscal policy sustainability and public debt in Africa

Fiscal policy sustainability and public debt in Africa

From Borrowing to Growth: Ghana’s Public Debt Strategy within its Financial Development Trajectory

Purpose: The study examined the implications of Ghana’s soaring public debt on its financial development, specifically its banking behaviour. Given Ghana’s alarming public debt of 78.3% of GDP by 2022 and previous periods of high public debt correlating to global economic downturns, understanding this relationship is vital for both local and international policymakers.
 Methodology: The research employs annual growth rates of various financial development indicators (e.g, Ease of Doing Business Index and Digital Transaction Index) and measures public debt using the Public Debt-to-GDP Ratio. Advanced econometric methods were used to ensure data accuracy, including cointegration, error correction models, and tests like Dickey-Fuller, Augmented Dickey-Fuller, and Sargan-Rhargava Durbin-Watson.
 Findings: The ADF test confirmed the stationarity of all study variables. Cointegration tests show a long-term equilibrium relationship among the variables. In the short run, a positive and significant relationship exists between variables such as Domestic Bank Intermediation, Financial Development, and Public Debt. Regression outcomes indicate that as Public Debt escalates, there’s an associated increase in Financial Development in Ghana.
 Implications: These findings reveal that despite the potential pitfalls of high public debt, a complex dynamic exists where increasing public debt positively correlates with financial development in Ghana’s short run. This insight can be valuable for policymakers in balancing infrastructural investments, social programs, fiscal sustainability, and financial growth, especially for developing nations facing similar debt scenarios.
 Originality: This study offers a unique, in-depth three-decade analysis (1992-2022) on the relationship between Ghana’s public debt and banking behaviour. It is an empirical precedent for other nations to understand the intricate relationships between public debt and financial growth.

The under-realized potential usefulness of the UK Whole of Government Accounts

IMPACT After 12 years of publication, the UK Whole of Government Accounts (WGA) is shown to be a qualified success. Compared with statistical accounting, the WGA delivers greater comprehensiveness (improved fiscal transparency) and exhibits less vulnerability to creative accounting (the perimeter is less porous). Combined with fiscal sustainability projections, the WGA highlights the fragility of UK public finances even before the Covid 19 and cost-of-living shocks. Future usefulness will depend on how effectively intermediate users can penetrate the policy domain and whether WGA production can be speeded up. The four modes of government accounting (government financial reporting, statistical accounting, budgeting and fiscal sustainability projections) provide improved information. Though tempting for hard-pressed political decision-makers claiming ‘to do good by stealth’, manipulations will undermine fiscal transparency and are likely to damage fiscal sustainability. This analysis of UK WGA shows how the modes interact, but will remain separate as they have different rationales, measurements and audiences.

Financial literacy as a factor of ensuring fiscal sustainability, efficiency of public finance management and financial market development

The article examines the current state of the level of financial literacy of the population in Russia, as well as the main trends in the development of financial literacy in the context of ensuring fiscal sustainability, the effectiveness of public finance management, and the development of the financial market. The mechanism of increasing financial literacy of the population is analyzed. It is shown that financial literacy of the population is directly related to financial education, financial culture, financial behavior and financial activity of the population. Reasonable conclusions are made that measures to introduce the Concept of improving financial and budgetary literacy of the population through the implementation of proactive budgeting practices approved by the Ministry of Finance of the Russian Federation at the end of 2022 will contribute to improving the level of financial (including budgetary) literacy and financial culture that affect the provision of fiscal sustainability, the effectiveness of public finance management, and the development of the financial market. and the new Strategy for Improving Financial Literacy and Financial Culture in the Russian Federation until 2030, the draft of which is currently being considered by the main participants of the Strategy for Improving Financial Literacy in the Russian Federation for the period 2017–2023.

Sustainability of the Public Servant’s Pension Scheme in Sri Lanka

Despite the global trend towards defined-contribution pension schemes, many public service pensions continue to follow defined-benefit structures, imposing a significant fiscal burden. This paper analyses the main public sector pension scheme in Sri Lanka in a context where the population is ageing rapidly and the government faces strong fiscal constraints. The study aims to forecast the costs of the Public Servants’ pension scheme and quantitatively evaluate policy options for improving fiscal sustainability. The study extends the model of Rannan-Eliya et al. (1998) using detailed data on the number and age structure of pensioners as well as information on public sector wages, inflation, and GDP growth. The model’s output is validated using observed pension costs from 2016-2022, and projections and policy simulations are carried out for 2023-2027. The study finds that expenditure on the scheme is estimated to increase by 6% annually and 10% over the next five years in real terms. Reducing the generosity of pension payments, raising the retirement age, suspending gratuity payments temporarily, and reducing the replacement rate for new retirees result in significant reductions to the annual pension bill, although the latter two options are unlikely to be politically feasible.

Valuing high temperature's fiscal costs: Evidence from China

Developing effective climate governance policies requires a comprehensive understanding of climate change's costs. However, the existing literature investigates the impacts of climate change on the private sector but neglects to evaluate the fiscal costs. Using fiscal data from Chinese county governments and meteorological data from weather stations from 1995–2019, this paper empirically examines the impacts of climate change, represented by changes in extremely high temperatures, on fiscal sustainability. Our results document that extremely high temperatures significantly increase fiscal expenditure and fiscal balance pressures on local governments. Mechanistically, extremely high temperatures have increased public demand for social and health spending, forcing local governments to increase expenditure. This paper reveals the substantial climate risks embedded in the fiscal sector. Local governments should incorporate the fiscal cost of climate change into their decision-making frameworks when making fiscal decisions and recalculate the costs and benefits of mitigation and adaptation policies.