Fiscal Trends Research Articles

India's Intergovernmental Transfer System and the Fiscal Condition of the States

India's fiscal deficit and steep deterioration in state finances is a source of concern. The literature abounds with references to the combined fiscal deficit of the center and the states currently at over 10 per cent of GDP. During no other eight year period has the debt-GDP ratio rose by more than 10 percentage points where the ratio of outstanding debt to GDP increased from 21 per cent in 1996-97 to 35 per cent in 2004-05 (Budget Estimate). In this paper, we contend that the lack of State fiscal discipline is due in large part to a flawed intergovernmental fiscal system that fosters fiscal profligacy at the state level. Specifically, the States are highly dependent on transfers from the Union Government, which breaks the Wicksellian link between costs and benefits. There is a lack of transparency and accountability in the system because of extensive use of inadequate revenue assignments, lack of sufficient decentralization to local bodies, and a poorly designed intergovernmental transfer system. Finally, the States are operating under soft budget constraints which encourage fiscal profligacy. In this paper, we concentrate our discussion on issues related to the intergovernmental fiscal transfer system. We contend that the high transfer dependency of the states has weakened accountability and fiscal discipline. The transfer system is also very complex and lacks transparency and coordination among the institutions in charge of implementing transfers, which together produce a cycle of distorting incentives. If the fiscal behavior of the States reflects the incentives created by the intergovernmental system, as we contend, then, absent structural reform of the intergovernmental fiscal system that addresses the perverse incentives of the current system, the fiscal trends described above are likely to persist. Although the Twelfth Finance Commission (TFC) has addressed some of the issues related to the intergovernmental fiscal system and soft budget constraint, there is still an urgent need to tackle other issues in the intergovernmental fiscal system that create perverse incentives and soften budget constraints. This emphasizes the need for the State and Union Governments of India to strengthen and accelerate the reform of India's intergovernmental system.

Retirement Security in Australia

This paper reviews Australian retirement income and aged services programs in the context of changing demographic, labourmarket and fiscal trends. Australia's federal division of powers, and its historic model of 'needs based' welfare, is examined across areas such as income security, protection against age/retirement discrimination, aged persons and nursing home accommodation, health care and private planning (such as superannuation). The paper argues that despite the challenges of an ageing society, Australian policy settings appear to strike the right balances and are both fiscally responsible and robust. Neoliberal market reforms recently introduced in some spheres of policy are critiqued it is suggested that their further expansion should be curtailed.

Rethinking Cooling Out at Public Community Colleges: An Examination of Fiscal and Demographic Trends in Higher Education and the Rise of Statewide Articulation Agreements

Recent data indicate that a large proportion of students entering community colleges are identifying terminal certificate or occupational associate degrees instead of academic majors or transfer as their short-term goal. Despite this, throughout much of the 1980s and 1990s, states established articulation agreements as policy instruments to enhance the transfer of students from public 2-year institutions to 4-year institutions. This conundrum raises an interesting two-part question: In the absence of a significant increase in the demand for transfer by community colleges entrants, why have states enacted these agreements, and what potential impacts may arise from these legislative trends? Applying the state relative autonomy theory, we contend that the rise of articulation agreements constitutes a new state strategy to cope with the stagnation of higher education appropriations, the spiraling costs of tuition, and an excess demand for affordable higher education.

Fiscal Policy Indicators in a Rule-Based Framework: An Indian Experience

Pattnaik, Raj and Chander examine the role of fiscal indicators in the Indian policy framework, which is essentially based on the Fiscal Responsibility and Budget Management Act of 2003 (FRBM). After surveying the literature on the measurement of structural and cyclical components of budget deficits, they examine public finance developments in India outlining the evolution of deficit measures and fiscal trends since the 1990s. The paper evaluates the impact of permanent and transitory factors in the recent fiscal consolidation phase, which has taken place in a context of fast economic growth. It assesses the effectiveness of the Central Government’s fiscal policy stance in terms of its impact on the structural component of the fiscal deficit and the compliance with the FRBM targets. The paper notes that the reduction of the deficit has largely been achieved via increases in revenue and concludes that tax policy changes have significantly contributed to this outcome.

Diminished Access to the Baccalaureate for Low-Income and Minority Students in California: The Impact of Budget and Capacity Constraints on the Transfer Function

California’s 1960 Master Plan for Higher Education promised all students a chance to pursue a baccalaureate degree by guaranteeing a place at one of the public 4-year institutions for all students who successfully fulfill a minimum set of requirements at a community college. However, capacity constraints in the state’s public colleges and universities are calling into question this promise of access to the baccalaureate. Dramatic cuts to higher education budgets combined with significant enrollment pressures and fee increases are reducing access for students who are lower income and underrepresented minority whose primary gate to the baccalaureate is through the community college transfer process. This article draws on data analysis and interviews with system and campus administrators to document the mechanisms by which access for these students is being restricted. The article discusses policy implications for California, and outlines lessons for other states experiencing similar social, demographic, and fiscal trends.

Fiscalidad real en Cantabria: alcabalas, cientos y millones en la época de los Austrias

This paper studies the evolution of the tax burden and its economic consequences in Cantabria (Burgos ancient province). The fiscal trend in XVI–XVII centuries is analyzed, taking into account the real value of the main Royal Finance revenues in terms of wheat fanegas per household. It also considers some issues of the fiscal policy like the forms of collection, the changes in the nature of royal taxes and their influences on consume and trade. The paper concludes by highlighting the differences between the taxes in the towns, country and the near privileged territories.

Examining Public Health Financing in New York State

Historically, there has been little national, standardized data collection on the financing of public health. In part this is due to the diverse way in which local public health is organized and funded. The lack of consistent financial data to adequately evaluate performance severely limits the ability of policy makers to set standards for improving quality. However, even in the absence of such data and analysis, policies have been established by local, state, and national governments to reduce public health funding, while at the same time, placing additional responsibilities on local public health. In an effort to understand fiscal trends for local health departments in New York State, the New York State Association of County Health Officials conducted a survey in December 2002 that collected data on spending and funding sources from calendar year 2000 to calendar year 2002. The survey instrument presents a model for state and local public health departments to evaluate their own resources/needs and to promote information exchange within and between localities. With limited resources, local public health officials must make difficult choices about their programs. By encouraging localities to collect uniform financial data sets, public health will be better suited to support its case for stable and sufficient funding.

Is India’s public finance unsustainable? Or, are the claims exaggerated?

Growing concerns about the sustainability of the fiscal policy in India have evoked serious concerns in the recent past. The present paper has assessed the Indian fiscal trends in terms of inter-temporal budget constraint (IBC) for the Central and State Governments separately and together by employing Gregory and Hansen [J. Econometrics 70 (1996) 99] tests of co-integration with structural breaks. By addressing the issue of regime shift, this paper finds that while the fiscal stance of the Central and the State Government at the individual level is unsustainable, it is weakly sustainable for the combined finances as it nets out inter-governmental financial flows. Thus, claims about sustainability of India’s public finance, made on the basis of the assessment of individual finances and neglecting inter-governmental flows and the possibility of regime shifts seems exaggerated.

Finacial Decentralization and Local Self-governance in the Period of Reforms

This paper reviews Russian municipal budget revenues and expenditures reforms in 1992–2002. Recent tax reforms have resulted in the decrease of local fiscal autonomy. Municipal budget revenues have dropped sharply in relative as well as absolute terms. Despite significant formal expenditure powers Russian municipalities are completely financially dependent on higher-level governments. Within regions regional governments have continued to increasingly finance municipal social expenditures. The examination of possible scenarios of development after the enactment of the draft law"On the General Principles of the Organization of Local Self-governance in the Russian Federation" shows that the fiscal centralization trend will continue.

Fiscal Trends: Implications for the Rural South

Key demographic trends in the rural South over the next decade—the aging of the population as baby boomers enter retirement, continued migration to the South, and rapid increases in shares of Hispanic residents—may have profound consequences for the financing of rural community public services. In this paper, we provide an overview of demographic and economic trends that are expected to influence the ability of rural communities to provide essential public services. In addition, we provide econometric evidence on the impacts that these trends are likely to have on the financing of K-12 education in South Carolina.

Inflation and the great ratios: Long term evidence from the U.S.

Using over 100 years of U.S. data, we find that the long-run effects of inflation on consumption, investment, and output are positive. Also, great ratios like the consumption and investment rates are not independent of inflation, which we interpret in terms of the Fisher effect. However, the variability of the stochastic inflation trend is small relative to the variability of the productivity and fiscal trends. Thus, models generating long-term negative effects of inflation on output and consumption seem to be at odds with data from the moderate inflation rate environment we consider.

Computing the Extent of Circumvention of Proposition 13: A Response

Galles and Sexton (1998) showed that California state and local revenues exceeded their previous real per capita levels as did the sum of property taxes plus charges and miscellaneous revenues within a decade after Proposition 13 passed, and concluded that Proposition 13 was only temporarily successful at shrinking California state and local governments. Khoury and Pal (2000) challenge this conclusion. However, their conclusion that Proposition 13’mvention “n only marginal”from using per $1000 of income comparisons rather than real per capita comparisons and from using growth rate changes, which fail to adjust for U.S. fiscal trends, instead of changes in the levels of variables as their primary measure.

Inflation and the Great Ratios: Long-Term Evidence from the U.S.

Using over 100 years of U.S. data, we find that the long-run effects of inflation on consumption, investment, and output are positive. Thus, models generating long-term negative effects of inflation on output and consumption (including endogenous growth and RBC models with money) seem to be at odds with data from the moderate inflation rate environment we consider. Also, great ratios like the consumption and investment rates are not independent of inflation, which we interpret in terms of the Fisher effect. However, in the full sample, the variability of the stochastic inflation trend is small relative to the variability of the productivity and fiscal trends, so inflation accounts for little of the movements in real variables. By comparison, we find in the post-WWII sub-period that although significant permanent shocks to inflation are a more regular feature of the data, the long-run real effects of a given size inflation shock are much smaller.

Inflation and the Great Ratios: Long-Term Evidence from the U.S.

Using more than 100 years of data from the United States, we find that the long-run effects of inflation on consumption, investment, and output are positive. Thus, models generating long-term negative effects of inflation on output and consumption (including endogenous growth and RBC models with money) seem to be at odds with data from the moderate inflation rate environment we consider. Also, great ratios like the consumption and investment rates are not independent of inflation, which we interpret in terms of the Fisher effect. However, in the full sample, the variability of the stochastic inflation trend is small relative to the variability of the productivity and fiscal trends, so inflation accounts for little of the movements in real variables. By comparison, we find in the post-WWII sub-period that although significant "permanent" shocks to inflation are a more regular feature of the data, the long-run real effects of an inflation shock of a given size are much smaller.

Understanding the Federal Budget

How do you capture the complexity and breadth of an entity that spends over $1.5 trillion and employs over 4.5 million people? As an initial step in dealing with the challenges presented by the scope and magnitude of the federal government, the U.S. General Accounting Office (GAO) has produced a variety of primarily graphical products based on historical budget information. The Debt Primer The topic of the federal debt provokes much confusion among both policy makers and the public. For example, one point that is sometimes overlooked is that even if Congress and the president agree to balance the budget within the next several years, the dollar amount of the federal debt would continue to grow until balance is actually achieved. Once the budget is balanced, although the debt would decline as a share of the economy, its dollar value would essentially remain the same. The only way to reduce the amount of debt is to run a budget surplus. Although many excellent articles, reports, and books have been written on the debt and its effects, these discussions tend to be complex and technical. To help provide basic information about the debt in an accessible way, the GAO has published an informational report called Federal Debt: Answers to Frequently Asked Questions (AIMD-97-12, November 27, 1996). In this document, the GAO defines key terms, such as debt, deficits, and interest, and explains how they are related. With the help of numerous charts and graphs, the document summarizes the historic trends in these important fiscal indicators and discusses their economic and budgetary effects. In addition, the report briefly addresses more technical issues, such as how the government borrows and the rollover of the debt. Fiscal Trends Two recent publications address the basic question: What's growing (and what's not). In Federal Fiscal Trends: Fiscal Years 1971-1995 (AIMD-97-3, November 1, 1996), the GAO presents basic fiscal data -- revenues, outlays and deficits -- in easy to understand graphs and figures, accompanied by brief explanatory statements. The publication focuses on one of the most dynamic periods of federal fiscal affairs and shows the dramatic changes that have occurred. In Budget Trends: Obligations by Item of Expense, Fiscal Years 1971-1994 (AIMD-95-227, September 12, 1995), the GAO summarizes spending according to the items of government expenditure. This classification approach, one of the oldest used in governmental budgeting, provides insight into the shifting patterns of federal spending and, specifically, the declining share of operating expenses as a percentage of total spending. Government Restructuring In a series of reports for the Chairman of the Senate Committee on Government Affairs, the GAO addressed the question of fragmentation and overlap in federal programs by arraying spending and personnel levels by (1) mission (i.e., the budget function and subfunction presentations), and (2) department and agency. By examining the functions of government agencies, the GAO laid the foundation for further inquiries about government restructuring. The GAO publications in this line of work include the following: Government Restructuring: Identifying Potential Duplication in Federal Missions and Approaches (T-AIMD-95-161, June 7, 1995); Budget Function Classification: Agency Spending by Subfunction and Object Category, Fiscal Year 1994 (AIMD-95-116FS, May 10, 1995); and Budget Function Classification: Agency Spending and Personnel Levels for Fiscal Year 1994 and 1995 (AIMD-95-115FS, April 11, 1995). …

Post-Soviet Development and Status of Russian Nature Reserves

An American specialist on Russian environmental problems assesses the post-Soviet situation of Russia's zapovedniki (nature reserve) system. Attention is focused on the 19 new reserves that have been created in the 1992-1996 period, which cover a combined 10,171,000 ha. The main characteristics of these new reserves is reviewed, with special attention given to the adequacy of their location vis-a-vis natural zones and endangered species distribution in Russia. The main spatial, fiscal, and biotic trends characterizing Russian zapovedniki in the 1990s are noted, and recent initiatives to cope with a variety of problems currently besetting the system are critically reviewed. Journal of Economic Literature, Classification Numbers: Q24, Q26. 3 figures, 6 tables, 42 references.

Long-Term Evidence on the Tobin and Fisher Effects: a New Approach

Using a new approach, we reexamine the empirical evidence on the long-term interactions between inflation and real variables. We find, using over 100 years of U.S. data, that in the long run the effect of inflation on investment and output is positive (a Tobin type effect) and the investment rate, and hence the real interest rate, are not independent of inflation. However, over the full sample at least, the variability of the innovations to the stochastic inflation trend is small relative to the variability of the innovations to the productivity and fiscal trends. We conclude that models generating a reverse-Tobin effect, including standard real-business-cycle and endogenous growth models that incorporate money, may not be the best models for understanding the long-term real effects of inflation.

Long-Term Evidence on the Tobin and Fisher Effects: A New Approach

Using a new approach, we reexamine the empirical evidence on the long-term interactions between inflation and real variables. We find, using over 100 years of U.S. data, that in the long run the effect of inflation on investment and output is positive (a "Tobin type effect") and the investment rate, and hence the real interest rate, are not independent of inflation. However, over the full sample at least, the variability of the innovations to the stochastic inflation trend is small relative to the variability of the innovations to the productivity and fiscal trends. We conclude that models generating a reverse-Tobin effect, including standard real-business-cycle and endogenous growth models that incorporate money, may not be the best models for understanding the long-term real effects of inflation.

Fiscal Trends in Real Economic Aggregates

Using cointegration analysis, the authors examine long-term interactions between fiscal variables and the consumption-output and leisure-labor ratios. The motivation is to test if fiscal trends are an independent source of stochastic trends underlying the long-run behavior of real economic aggregates. The authors' results support the presence of fiscal trends and can be interpreted quite well in terms of the equilibrium approach to fiscal policy. They suggest that neoclassical growth models that embed fiscal trends and distinguish between components of government purchases are more consistent with the data than simple real-business-cycle models. Copyright 1995 by Ohio State University Press.

Exploration/Development Economics and Fiscal Trends in Nigeria: ABSTRACT

Exploration/Development Economics and Fiscal Trends in Nigeria: ABSTRACT