General Government Balance Research Articles

Evolution of the revenue/ expenditure structure and passenger cost coverage ratio of regular passenger transport between 2007 and 2022

This article presents a general methodology for aggregating the actual costs and revenues of public transport in Hungary, which allows to calculate a realistic passenger (user) cost coverage ratio for the main players in the domestic market (MÁV-Volán Group, GYSEV, BKK). After an international perspective and a presentation of the specificities of the domestic market, it is concluded that the cost coverage ratio for fixed rail transport is significantly lower than for public transport services on road. The main reason for this is that fixed rail infrastructure is expensive to develop and operate and is mainly used by public passenger transport. The ridership ratio is significantly reduced by significant investments, and this has been analysed both on a time series and average basis. We present the timetable, tariff changes and major investments that have had an impact on ridership rates, typically only to a small extent. Our analysis is financially oriented and only touches on positive externalities, social benefits and the general government balance

Empirická verifikace vztahu mezi saldem hospodaření sektoru vládních institucí a běžného účtu platební bilance: Případ zemí Evropské unie

The article focuses on the relationship between the general government balance and the current account of the balance of payments. The aim is to summarize the existing knowledge about the relationship based on the twin deficit theory and to carry out an empirical verification. As part of the analysis, the Granger causality method is first applied to each EU country separately, and then the threshold panel regression method is used. For the subsequent estimation of the threshold panel model, the direction of the relationship from the general government balance to the current account is considered based on the results of Granger causality. Within the panel, the dependence of the balances on the level of the general government debt to GDP is tested. First, the relationship and its strength are verified in all EU countries. Due to the diversity of EU countries, the economies are subsequently aggregated into sub-panels. Threshold values for general government debt affecting the strength of the relationship between balances are different for individual panels and depend, among other things, on the perception of these countries by the financial markets and often also on the (high) indebtedness of the private sector, which usually requires a more drastic fiscal policy response.

Is EU Fiscal Governance Effective? A Case Study for the Period 1999–2019

This paper examines the factors that influence the effectiveness of fiscal governance in the EU through a panel of 19 Eurozone countries for the period 1999–2019 using an OLS method. The results show the positive effects of economic growth, inflation and the change in the general government balance on the fiscal forecast error. Furthermore, the fiscal forecast error is negatively affected by the level of public debt and by elections. Fiscal transparency is integrated into the analysis through independent financial institutions, which positively influence the general government balance forecast error. Finally, Economic Adjustment Programs have a positive effect on the fiscal forecast error, thus improving the efficiency of fiscal governance. This paper suggests that independent budgetary institutions, such as fiscal councils, and the delegation of further responsibilities to them increase countries’ sustainability of public finances.

The Fiscal Policy of Germany and France. From the Creation of the Euro up to the Pandemic

The aim of this article is to demonstrate the development of general government debt and general government balance in two Eurozone countries, Germany and France, in order to investigate the extent of the fulfilment of the convergence criteria. The article is divided into two periods: from the creation of the Euro currency to the period before the global financial crisis, and after it to the time of the pandemic. France and Germany notoriously violated the rules of the Stability and Growth Pact. The beginning of the financial crisis saw a sharp rise in the deficit and debt-to-GDP ratio to over 80% in both countries followed by a fiscal consolidation period. As a result, Germany managed to reduce its debt to 60% of GDP, while in France this indicator achieved a level close to 100% in 2019. The methodology is based on an analytical approach and a literature review of the subject (see Escolano, 2010). Following this methodology, the debt sustainability analysis of the public debt was carried out. According to the author, France should have carried out the necessary structural reforms. Otherwise, if interest rates of ECB continue to rise, France may face a critical situation.

Macroeconomic drivers of Public Private Partnership (PPP) projects in low income and developing countries: A panel data analysis

Drawing on a comprehensive panel data of 137 low income and developing countries, this study queries the macro-economic drivers of Public Private Partnership (PPP) in these countries. PPP is mainly used as a method to address infrastructure needs of nation states which cannot allocate their financial resources towards infrastructure investments and/or cannot secure finance through other instruments. Previous studies in the field remain partial as they included a limited number of macro-economic factors and a smaller number of countries. Our findings suggest that general government balance, population size, money supply and the share of investments in GDP are significant determinants of PPP activity.

Study and Reports on the VAT Gap in the EU-28 Member States: 2020 Final Report

This Study contains Value Added Tax (VAT) Gap estimates for 2018, fast estimates using a simplified methodology for 2019, the year immediately preceding the analysis, and includes revised estimates for 2014-2017. It also includes the updated and extended results of the econometric analysis of VAT Gap determinants initiated and initially reported in the 2018 Report (Poniatowski et al., 2018). As a novelty, the econometric analysis to forecast potential impacts of the coronavirus crisis and resulting recession on the evolution of the VAT Gap in 2020 is reported.In 2018, most European Union (EU) Member States (MS) saw a slight decrease in the pace of gross domestic product (GDP) growth, but the economic conditions for increasing tax compliance remained favourable. We estimate that the VAT total tax liability (VTTL) in 2018 increased by 3.6 percent whereas VAT revenue increased by 4.2 percent, leading to a decline in the VAT Gap in both relative and nominal terms. In relative terms, the EU-wide Gap dropped to 11 percent and EUR 140 billion. Fast estimates show that the VAT Gap will likely continue to decline in 2019.Of the EU-28, the smallest Gaps were observed in Sweden (0.7 percent), Croatia (3.5 percent), and Finland (3.6 percent), the largest – in Romania (33.8 percent), Greece (30.1 percent), and Lithuania (25.9 percent). Overall, half of the EU-28 MS recorded a Gap above 9.2 percent. In nominal terms, the largest Gaps were recorded in Italy (EUR 35.4 billion), the United Kingdom (EUR 23.5 billion), and Germany (EUR 22 billion).The Policy Gap and its components remained stable. For the EU overall, the average Policy Gap level was 44.24 percent. Of this, in 2018, 10.07 percentage points were due to the application of various reduced and super-reduced rates (the Rate Gap) and 34.17 were due to the application of exemptions without the right to deduct.The results of the econometric analysis show that the VAT Gap is influenced by a group of factors relating to the current economic conditions, institutional environment, and economic structure as well as to the measures and actions of tax administrations. Out of a broad set of tested variables, GDP growth and general government balance appeared to explain a substantial set of VAT Gap variation across time and countries. Within the control of tax administrations, share of IT expenditure proved to have the highest statistical significance in explaining the size of the VAT Gap. In addition, the VAT Gap appeared to be inter-related with the values of risky imports of goods, indicating the role of fraud in driving the overall share of the VAT Gap.Since the COVID-19 recession will likely have a dire impact on the EU economies, the VAT Gap in 2020 is forecasted to increase. If the EU economy contracts by 7.4 percent in 2020 and the general government deficit jumps as forecasted in the Spring Forecast of the European Commission, the Gap could increase by 4.1 percentage points year-over year up to 13.7 percent and EUR 164 billion in 2020. The hike in 2020 could be more pronounced than the gradual decrease of the Gap observed over the three preceding years. Moreover, a return to the VAT Gap levels observed in 2018 and 2019 will take time and require significant action from tax administrations.This Report has been written for the European Commission, DG TAXUD, for the project TAXUD/2019/AO-14, “Study and Reports on the VAT Gap in the EU-28 Member States”, and is a follow-up to the seven reports published between 2013 and 2019.

An Evaluation of IFIs Impact on EU Countries Budget Deficits

This paper explores the impact of the independent fiscal institutions on public budget deficit in the European Union. We employ a dynamic panel model for the period 2000-2019 and find that these fiscal watchdogs have a positive and significant influence on general government balance for European Union Member States, resulting in smaller public budget deficits. The findings maintain their significance regardless of the year of accession to the European Union (old vs. new members) or euro area status (euro area vs. non-euro area members). However, we find that the independent fiscal institutions play a much important role for countries that established their fiscal institutions before 2013. Moreover, we document that during systemic and banking crises these independent fiscal councils can help reducing public budget deficits. Our results are robust to a variety of specifications and models, including alternative definitions of government balance and after controlling for a set of institutional characteristics.

The State of Students’ Financial Literacy in Selected Slovak universities and its Relationship with Active Pension Savings

(ProQuest: ... denotes formulae omitted.)IntroductionFinancial literacy (FL) and its regulatory options are currently the subject of numerous professional and scientific discussions. Financially illiterates cannot fully participate in today's economy as such. It is important to develop students' skills in FL and strengthen the commitment of policy makers while introducing this topic into educational processes. In this context not only the demand increases particularly, but also the need for reliable data about FL among people worldwide. Such data can subsequently improve financial education strategies and implementation of financial education not only in schools. As a result of the impact of the economic and financial crisis accompanied with the process of demographic aging in all the economies of the world the question of the public pension systems' instability and threats to their sustainability is growing in importance (Rey-Ares et al., 2016). The shape of European age pyramid is transforming in consequence of higher life expectancy and consistently low birth rates what leads to a much older population structure. This unfavorable development is apparent in many European countries as well as in the United States. Between 2001 and 2016 the median age in Europe increased by 4.3 years, it means a rise from 38.3 years to 42.6 years (Eurostat, 2017). According to demographic projections by the Eurostat (2016) Slovak citizens will be aging among the fastest of all EU countries, whereas the average age of Slovak population increases by 4.6 years (12.1%) over the period of 20072025. The aging index is likely to exceed the limit of 100 before 2025. This means that the population of the post-productive age will be higher than the number of people in the preproductive age for the first time in history. The ratio of the elderly population to the working age population in Slovakia will be more than tripled (Rizman & Harvan, 2015; Eurostat, 2016). Public expenditures being rather sensitive to the phenomenon of population aging will increase significantly by 2060 and will have a negative impact on the general government balance. Pensions and healthcare will be particularly responsible for expenditure growth. To meet the challenges of this ageing population, especially after the recent economic and financial crisis, standard ages for retirement have increased, and occupational pensions have become less generous. As a consequence, a substantial part of risks and responsibilities for adequate standards of living after retirement has been shifted from governments and employers onto individuals and/or private households (OECD, 2013; Oehler & Werner, 2008; Prast & Soest, 2016; Lusardi, 2015a; Lusardi, 2015b). In this context, the results of the research by Babiarz & Robb (2014) pointed to the fact that households with greater financial knowledge and skills are more likely to be able to have emergency funds. The odds of having emergency savings could also increase with higher level of financial literacy. The research suggests the strong connectivity of FL with the accumulation of emergency savings which is a determining component of households' financial stability.1.Literature reviewIn many foreign studies approaches that prefer rationality and pragmatic point of views in relation to FL are dominate. Consequently, higher financial knowledge helps individuals to monitor an optimal consumption and balanced portfolio of household with relation to finances (Romitiy & Rossiz, 2014). They also lead to higher probability of savings' creation and correct financial planning for pension (Fernandez-Lopez et al., 2010; Hung et al., 2009). Relatively few EU adults save for old age and even those who save often have weak financial literacy (McGraw Hill Financial, 2015). The savings of individuals, especially students, must be adequate enough to cover longer retirement periods due to higher life expectancies (Lusardi, 2015a). …

BUDGET DEFICIT CAUSES INFLATION? APPLICATION TO PORTUGAL

The analysis of Portuguese inflation, based on annual data from 1961 to 2012, using the Johansen Method, allows us to conclude that variation in Portuguese inflation is determined essentially by foreign inflation and by variation in the effective exchange rate, but the lagged variation of budget deficit seems to causes variation of inflation in the studied period. In the long run there are two long-run relationships. Both the inflation rate and the wage inflation rate relate positively with the General Government Balance in percentage of GDP, negatively with the exchange rate index, positively with the foreign inflation index and negatively with the trend. In the short run the variation of the inflation rate relates positively with foreign inflation (or its variation) and the variation in the effective exchange rate, relates negatively with the error correction mechanism, so there is a significant response to the equilibrium error between inflation rate and its determinants. In addition to this adjustment, the inflation rate responds positively and significantly to the lagged variation of the budget deficit, as expected.

SUSTAINING GOVERNMENT BUDGET DEFICITS AS A CAUSE FOR THE COST OF PUBLIC DEBT SERVICE INCREASE IN WESTERN EUROPEAN COUNTRIES IN THE 1995-2015 PERIOD

More and more results of econometric modeling research are showing the relationship between the value of general government deficit and the costs of public debt service. The correlation analysis conducted for the purposes of this work confirms strong negative dependence between the average general government balance (in relation to GDP) and the average yield of 10-year treasury bonds in 15 Western countries within the EU in the 1995–2015 period (sustaining higher deficits of general government are accompanied with higher costs of public debt service over a long period of time). Pearson’s correlation coefficient for the entire research period amounted to –0,78. This dependence increased after the breakout of the financial crisis – within the 2008–2015 period, Pearson’s r = –0,71, whereas during the 1995–2007 period, it was –0,63, which is consistent with the research results pointing out that the condition of public finances affects the decisions of investors in crises greater than in the relatively calm periods.

The Stabilizing Expenditure Rule in Poland—Simulations for 2014–2040

The stabilizing expenditure rule (SER) imposed on the general government (GG) sector in Poland has been in force and binding since 2014. According to this rule, approximately 90 percent of GG expenditure is allowed to grow, at the most, in line with the real medium-term GDP, and the maximum expenditure growth rate is lowered if there is excessive debt or deficit, or the GG balance does not meet the medium-term objective. A series of stochastic simulations has been constructed that allows for the assessment of how the SER will affect the most important public finance indicators in the period between 2014 and 2040. In addition, this article analyzes the consequences of the lowering of debt thresholds in the SER’s correction mechanism due to the pension system reform implemented in Poland in 2014, and the amendment to the formula in 2015, and predicts how the fiscal reaction function may change after the introduction of the SER in Poland.

European Commission's Forecasts Accuracy Revisited: Statistical Properties and Possible Causes of Forecast Errors

This paper updates a previous assessment of the European Commission's track record for forecasting key economic variables (Gonzalez Cabanillas and Terzi 2012) by extending the observation period to 2014. It also examines the accuracy of the Commission's forecasts over a shorter and more recent period (2000-2014) so that a comparison can be made between the performance of forecasts made before and after the Great Recession of 2008-2009. Going beyond the 2012 approach, this paper also examines the extent to which forecast errors can be explained by external or technical assumptions that prove incorrect ex post. It also updates the comparison of the Commission’s performance vis a vis the OECD, the IMF, a consensus forecast of market economists, and the ECB.Inclusion of the 2012-2014 period lowers the forecasting error for some key variables or leads to no change in others. Focusing on the years since the turn of the century, current-year and year-ahead forecasting errors for the three main variables examined (GDP growth, inflation and general government balances) have been larger in the crisis and post-crisis period (2008-2014) than in the pre-crisis period (2000-2007) for a large majority of Member States. This appears mainly to be the result of an anomalously large error in 2009, a year which confounded many forecasters. The country-by-country analysis confirms the finding of earlier studies which show that the Commission's forecasts are largely unbiased. The newly-introduced panel data approach also confirms the absence of bias in current-year GDP forecasts across EU Member States but shows that year-ahead forecasts for GDP growth tend to be slightly over optimistic across the whole sample. The analysis also shows that auto correlation of forecast errors is not a major issue in the Commission's forecasts. Other advanced tests shed more light on the performance of the Commission’s forecasts, demonstrating that they are directionally accurate and generally beat a naive forecast but that they are not always efficient in terms of their use of all available data.The decomposition of forecast errors shows that unexpected changes in external assumptions seem to have only a limited impact on current-year GDP growth forecasts. However, more than half of the variance in year-ahead forecast errors appears to come from external assumptions that prove to be incorrect ex post. Finally, the Commission’s economic forecasts come out as being more accurate than those of the market and comparable to those of the other international institutions considered.

Elasticity of Taxes and Structural General Government Balance in Turkey

This paper calculates tax and expenditure elasticities for the general government sector, and produces general government structural primary balance. Indirect tax elasticity is calculated as 1.26 resulting from a shift in household consumption patterns from mostly primary goods and services, which are subject to lower tax rates, to more luxurious goods with higher tax rates as household income grows. In addition, elasticity is calculated as 1.28 for income tax, as 0.54 for social security premiums, as 1.38 for corporate income tax. Thus weighted general government tax elasticity is found as 1.04. Between 1999 and 2012, the ratio of primary general government balance to the potential GDP is calculated as 3.9 percent with a -0.2 percent cyclical effect on average.

Expenditure Growth, Fiscal Sustainability and Pre-Funding Strategies in OECD Countries

OECD countries are ageing with resulting fiscal pressures. OECD countries can adopt a number of strategies in response, including modifying expenditure plans, increasing growth, raising taxes in the future or undertaking activities to pre-fund the future liabilities. The appropriate policy response for a country will depend on the particular circumstances facing the country. This paper focuses on the pre-funding option without wishing to imply the pre-funding is necessarily the best policy approach for all countries. We define pre-funding as increasing net financial assets which implies either reducing debt or increasing financial assets. We identify 15 OECD countries as having undertaken some pre-funding. This is a higher number than may be expected, partly due to the fact that primary budget balances are more useful indicators of debt dynamics than general government balances. Of the 15 countries we identify 8 as ‘strong pre funders’ which have a history of pre-funding and a forward looking pre-funding strategy. These are Belgium, Canada, Denmark, Finland, Luxembourg, New Zealand, Norway and Sweden. We identify 7 other countries with less aggressive pre-funding strategies as mild pre funders – Australia, Iceland, Ireland, Italy, Korea, the Netherlands and Spain. The most striking characteristic of the strong pre funders is their high tax to GDP ratio – an average of 51.7 per cent of GDP compared to an average of 42.7 per cent of GDP for countries that do not pre-fund. The strong pre-funders also have slightly higher expected increases in pension expenditure (4.5 percentage points of GDP compared to an OECD average of 3.8 per cent). This difference is consistent with the view that higher welfare benefits are associated with tax smoothing at higher initial tax rates.

Structural Balance and 'Structural Effort'

The evolution in the public balance reflects both fiscal policy decisions and the impact of cyclical evolutions. In attempting to characterize the orientation of fiscal policy, it is a priori natural to adjust for the impact of the economic cycle on the public finances. This exercise is important as much for the management of public finances as for the conduct of macroeconomic policy. There seems to be no dispute regarding either the utility of the calculation or its methodological base. The method used, which is broadly common to all the international organizations, consists of evaluating the cyclical component of the general government balance on the basis of measurement of the economy's position in the cycle (captured by taking the output gap). The so-called 'structural' balance is then obtained by deducting this cyclical component from the observed balance. In practice, however, measurement of the balance raises a certain number of difficulties. In the first place, it turns out to be sensitive to the measurement of the economy's position in the cycle, which may be differently assessed by different institutions. These differences in the diagnosis of the cyclical situation then have an impact on the construction of the absolute level of the balance. In addition, the calculation method is based on a set of assumptions that are more or less open to question. In particular, it assumes that 'spontaneous' tax revenue evolves in line with activity. While this property seems to be verified econometrically over the long term, it constitutes a very strong conventional assumption for the short term and one that is not verified in practice. This latter difficulty has an important consequence, namely that it substantially blurs the interpretation of the balance when attempts are made to identify the portion of the evolution in the public balance that is attributable to discretionary decisions on the part of the authorities. This means that the concept of balance is a very imperfect measure for characterizing the orientation of fiscal policy. It is in fact conceived as the 'residual' between the observed balance and its cyclical component, the result being that any factor that does not explicitly appear in the cyclical balance is, by construction, of a nature. This is true in particular for the interpretation of short-term fluctuations in the elasticity of revenue: the calculation conventions used in the method lead to interpreting these fluctuations entirely as part of the variations in the balance, whereas in fact, by their very nature, they lie outside the control of the fiscal authorities and therefore are not subject to discretionary decision.What is probably a more satisfactory measure of the discretionary component of public finances has been proposed in the 'Economic, Social and Financial Report' annexed to the 2004 Budget Bill, using the notion of 'structural effort'. This 'structural effort' singles out two factors: the gap between the growth in public expenditure and potential growth, which may be called the structural expenditure and the relating to compulsory levies collected by the whole of general government. In fact, the effort in any case merely identifies a part of the factors relating to the evolution in the balance and an accounting breakdown makes it possible to move from one concept to the other by means of certain adjustments: elasticity effect, timelag between chargeable event and collection of certain taxes (personal income tax and corporation tax), and the evolution in revenue excluding compulsory levies. An approach of this kind is still open to improvement. The simplest would be to adjust the discretionary expenditure effort to allow for that part of spending that can be regarded as 'automatic', in particular interest charges and unemployment-related expenditure. This adjustment marginally modifies the calculation. At a more fundamental level, however, the method remains asymmetrical in its treatment of expenditure and revenue. On the revenue side, the effort does indeed single out the taken by public decision-makers - in the legal sense. On the other hand, for lack of an evaluation of the new measures on the expenditure side, reasoning of a statistical nature is adopted by comparing growth in expenditure with potential growth. However, the reference to potential growth as the yardstick for distinguishing discretionary expenditure from non-discretionary expenditure seems to be highly conventional.

Veřejná zadluženost zemí střední a východní Evropy. Vývoj v kontextu světové hospodářské krize

Many of the Central and Eastern European countries faced general government balance problems in the 1990s, already during their transition period. Moreover, these problems continued during their EU accession. After both the Eastern enlargements, the situation was improving and, besides, the general government debt were kept at low levels. Later on, however, the economic crisis brought serious difficulties to general government balances. General government debt were also increasing. The article brings an overview and comments on these facts in a macroeconomic context. (Figures and comments are primarily deduced from Eurostat and OECD sources.)

Country notes

Each country note has the following structure: Section 1 gives a brief overview of the main economic developments in recent years in the relevant country including real GDP, fiscal balance and gross debt figures. This presentation is mainly based on the “OECD Economic Outlook No. 88”, OECD Economic Outlook: Statistics and Projections (database) (OECD, 2010a), and uses OECD definitions of general government balance and gross debt which may differ from national definitions (see Box 2.1). Section 2 presents the government’s fiscal consolidation strategies as manifested in fiscal balance and gross debt targets over the medium term, the size of the consolidation, and the composition of expenditures and revenues. Section 2 is based on information from the national authorities (or publicly available information) which may use other definitions of fiscal balance and gross debt than the OECD in Section 1. For example, most EU countries have reported such figures on a Maastricht basis. Major consolidation measures are given in Section 3, quantified to the largest extent possible in local currencies and current prices annually. Expenditure measures are split between operational and programme measures and other initiatives. Revenue measures are listed without categories. Updates and additional consolidation measures may have been adopted in member countries after the data collection ended in November/December 2010, but are outside the scope of this analysis. Table 1 summarises the government’s specific consolidation measures and their impact. The impact is given in per cent of nominal GDP, calculated by the OECD Secretariat by using nominal forecasts of GDP from the “OECD Economic Outlook No. 88”, OECD Economic Outlook: Statistics and Projections (database) (OECD, 2010a). Eventual pension reforms are also included in this section. Section 4 provides recent or planned institutional reforms. Table 2 summarises the government’s fiscal consolidation plan as presented in Section 2 and corresponding figures.

Determinants of economic growth in South - East Europe: A panel data approach

The objective of this paper is to reveal the main determinants of the economic growth in South-East European countries. We perform a panel data analysis for 7 countries with similar economic surroundings: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Romania and Serbia. The observation period is 1995 - 2007. Empirical results indicate that Consumer price index, Current account/GDP, Exchange rate, General government balance, General government expenditure, Population, Large scale privatization and Price liberalization are some of the main factors on which Southeast European countries policy makers should focus in order to reach significant increase in economic growth.

Determinants of economic growth in South - East Europe: A panel data approach

The objective of this paper is to reveal the main determinants of the economic growth in South-East European countries. We perform a panel data analysis for 7 countries with similar economic surroundings: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Romania and Serbia. The observation period is 1995 - 2007. Empirical results indicate that Consumer price index, Current account/GDP, Exchange rate, General government balance, General government expenditure, Population, Large scale privatization and Price liberalization are some of the main factors on which Southeast European countries policy makers should focus in order to reach significant increase in economic growth.

Sticking to fiscal plans: the role of institutions

The rules-based fiscal framework of the EMU relies heavily on the development of medium-term fiscal plans by the EU governments. In this paper, I present an empirical analysis of the deviations from the plans presented in the annual Stability and Convergence Programs. I focus on projections for real GDP growth and general government balances, revenues and spending at different time horizons. I show that deviations from the projections presented in these Programs since 1999 can be explained by institutional factors, i.e., the form of fiscal governance and the stringency of fiscal rules.