Government Deficits Research Articles

Economic Policy Objectives of the First Orbán Government (1998–2002)

The right-wing coalition government, which came to power in May 1998, led by Viktor Orbán, broke with the former applied neoliberal paradigm and began to pursue economic patriotism, which placed emphasis on assisting the activities of Hungarian SMEs. It also focused on boosting domestic consumption by supporting families to have children through state incentives. Thanks to these measures introduced between 1998 and 2002, both the government deficit and gross government debt started to fall substantially, which reduced the external vulnerability of the Hungarian economy. The objective of this paper is to analyse the economic policy objectives of the first Orbán government between 1998 and 2002. Emphasis will be placed on evaluating the key macroeconomic indicators of Hungary while taking into account both internal and external factors. Due to length constraints, the essay will not highlight domestic politics, but it gives an overview of the main features of economic patriotism from a European perspective.

Deficits in Democratic Governance in Developing Countries: The Bangladesh Scenario

This study investigates the interplay between democracy, development, and democratic governance gaps in Bangladesh and other developing countries. The main objectives are twofold: first, to explore how Bangladesh has achieved economic growth despite lacking democratic governance, and second, to assess the contradiction between democracy and development in developing nations. Employing a theoretical framework that views democracy and democratic governance as crucial processes of social transformation and political participation, this paper argues that structural barriers limit citizen involvement, leading to deficits in democratic governance. By analyzing secondary documents, the study reveals that Bangladesh’s economic progress coexists with a shortfall in democratic governance due to insufficient social transformation. To address this issue, enhancing democratic institutions, promoting social reform, and removing structural barriers are vital. The findings hold significance for other developing countries facing similar challenges.

Budget Deficit Financing and Macroeconomic Outcomes: New Evidence from a VARX Model for the Iranian Economy

The main goal of the study is to evaluate the impacts of different government deficit financing strategies on GDP growth and inflation in the oil-rich nation of Iran from 1990:1 to 2018:4. The link between the government’s budget deficit and GDP growth is examined using the Explanatory-Augmented Vector Autoregressive (VARX) model. Because of the presence of unmodelled variables in the research, the VARX model was applied. The results of the study indicate that the way that the government finances the budget deficit had a direct impact on GDP growth, such that when the Foreign Exchange Reserve Account (FERA) is for most of the financing, the budget deficit’s impact on GDP growth is positive and its severity is increasing. Although the government’s budget deficit has a positive impact on GDP growth, it becomes less severe when most of the financing is obtained through the Selling Government-Owned Companies (SGOC), and when the sale of Debt Securities (DS) is for most of the financing, the impact of the government’s deficit on GDP growth is positive. The study concludes that there is an insignificant effect of a government’s budget deficit on inflation when most of the deficit is covered by withdrawals from the foreign exchange reserve account. However, the budget deficit has raised inflation when the two other sources of funding have gotten most of the funding. One of the study’s innovations is its investigation of the ways used to finance the government’s budget deficit in oil economies, especially Iran. The use of a VARX model to analyse the impact of the government’s budget deficit on macroeconomic indicators and the severity of that impact is another novel aspect of this research. In the Iranian economy, there is no proper statistical information available about the spending of the budget deficit (especially after 2009). This article concludes with a clear message to policymakers: if the government tends to reduce the share of oil income in financing the budget deficit, increasing the share of debt securities is the best alternative.

Fiscal and monetary policy for difficult times: MMT solutions

This article considers the current economic situation from the lens of modern money theory (MMT) and expresses a policy response rooted in post-Keynesian theory and empirical data for the US and the euro area. First, MMT supports targeted deficit spending to promote production. Increasing domestic supply will reduce the prices of goods and energy. Second, MMT advocates for reducing the interest rate to make production more profitable. Third, MMT pushes for a job guarantee and increased unionization to alleviate wage pressure. Fourth, MMT believes in rationing, postponed consumption, patriotic saving, and regulation. Increasing interest rates and limiting government deficit spending are not the only ways to address the post-COVID-19 period. We show there are better ways to restore price stability.

Governing Greater Sydney: The democratic promise and contention of local governments’ metropolitan integration

AbstractMetropolitan planning in Australia is argued to suffer from a ‘governance deficit’, alongside various calls for planning reform. The Greater Sydney Commission (renamed the Greater Cities Commission in 2022) was established in 2015 as a state‐appointed planning commission to preside over new strategic and statutory planning powers; local governments’ metropolitan integration is one tenet of the reform's ambition for a more cohesive system. While the grounds for reform are often argued on effective terms, there is a clear need to explore the ways it may suffer from a ‘democratic deficit’ or be democratically defensible. This study explores the shifting planning powers, accountabilities, and forms of interest representation at the local level of the political system, in Australia's most concerted contemporary metropolitan reform attempt.Points for practitioners The reformed planning process promoted new forms of substantive exchange and coordination from the local government sector informing local, district, and metropolitan planning processes. Interest representation outside of local governments’ required plans is largely voluntary; Western City District councils demonstrated considerably more inter‐council collaboration as well as collaboration with the Commission than the Central City District. New forms of inter‐local exchange and coordination may help address ‘fragmented’ localism. The reform has improved prior democratic qualities of local strategic planning and improved policy accountabilities between councillors, the community, and planners in a loose compliance framework. The state's governance of housing growth targets and land use was said to contradict what had been negotiated between councils and the Commission, alongside local governments’ increasingly narrow land‐use and development approval powers and policy churn of its governance. Practitioners can use the meta‐governance framework to consider the democratic ‘performance’ or defensibility of the Greater Sydney Commission's governance system and improve this or similar metropolitan governance reform settings.

Factors of the Inflation in Nepal

This study examines the impacts of macroeconomic variables on the inflation in Nepal during 1975-2022. The variables considered for the study is limited to the use of broad money supply, real GDP, Indian prices. The results suggest that all variables considered are significant in long run implying that these variables are the determinants of inflation in Nepal. The results are consistent with monetary theory. The money supply and Indian prices cause inflation in the long-run based on an Ordinary Least Squares regression model. The empirical results show that in the long-run, the major determinants of inflation in Nepal are Indian inflation (0.453), real income (0.347),and exchange rate (0.224). In addition, Indian inflation (0.286), the exchange rate (0.141), and government deficit (0.039) have significant effects in the short-run. Finally, the error correction term is found to be negative and statistically significant suggesting a correction of short-run disequilibrium within two years.

Government Deficit Spending and Inflation: Alain Parguez and the Post-Keynesians

This article briefly recounts this author’s personal experience with Alain Parguez and sketches some of his important contributions over four decades. It then tackles the contemporary policy controversy concerning net public spending and inflation, which is once again contentious in today’s inflationary environment. Alain Parguez’s viewpoint was diametrically opposed to the Hayekian position that deficit spending is inevitably inflationary; the latter presumed positive relation between deficits and inflation being questioned by simple empirical evidence available from Western industrial countries. In his writings, instead, Parguez defended a strong Keynesian position on the productive role of public spending. Outside of interest payments on the public debt, he considered public spending broadly in the nature of public investment unassociated with any predictable inflationary consequences, except perhaps in a fully-employed economy. “Good” public budgetary deficits generate much-needed physical productive capital but also essential human/social capital via government transfers. This view is contrasted with the views of two other celebrated post-Keynesian/circuitist writers, Augusto Graziani and Hyman Minsky, who despite important common features of their analyses vis-à-vis those of Parguez, held a somewhat different view of the inflationary impact of deficit spending.

An Economic Analysis on The Impact of the FRBM Act on Central Government Deficits in India

The major purpose of this paper is to analyze the deficits of the Central Government in India since the 1990s, that isduring the pre (1990-1991 to 2002-2003) and the post-FRBMAct period (2003-2004-2022-2023). It looks into the extent to whether the execution of the Fiscal Responsibility and Budget Management (FRBM) Act has played a positive role in bringing downthe overall deficits of the Government or not.The study is based on secondary data and employs Dummy Variable Model for analysis. It is found that the FRBMActwas not successful in minimizing the deficits of the Central Government in India. Thus, it is suggested that it would be advantageous if the Government complies with the targets put down by the FRBM Act as this in turn would help in achieving fiscal discipline, consolidation, growth and stability in the country.

Government deficit and “The World’s smallest macroeconomic model” by Paul Krugman

<p class="MsoNormal" style="margin-top: 12.0pt;"><span lang="EN-US" style="mso-bidi-font-size: 10.5pt; font-family: 'Cambria',serif; mso-fareast-font-family: 宋体; mso-bidi-font-family: 'Times New Roman';">In his "The World’s smallest macroeconomic model” (Krugman (1999)), Paul Krugman argued that under the assumption of price rigidity, a shortage of money supply leads to underemployment or recession, so increasing money supply can eliminate underemployment and restore full employment. But, how do we increase the money supply? I will show that we need a government deficit to increase the money supply in order to restore full employment from recession. Also, I will show that in a growing economy, if people hold money, a government deficit is necessary to maintain full employment under constant price or inflation. A government deficit is not only effective in pulling the economy out of recession, it is even necessary for continued growth without inviting either recession or inflation. The government deficit in this paper represents the difference between government expenditures and government revenues. When the difference is positive, we say that the government has a deficit. This paper seeks to explore theoretically and normatively the role of government deficits in achieving and maintaining full employment in a growing economy without causing inflation, using a very simple model by Krugman.</span></p>

Quantitative easing rules as a means to achieve optimal levels of structural reforms and government deficits in a monetary union

AbstractThis paper uses a tractable game theory model to study the interactions of structural reforms and fiscal and monetary policies in the European Monetary Union (EMU). Considering the externalities that arise when interest rates have hit the lower bound and monetary policy is carried out through quantitative easing (QE), we show that the subgame perfect equilibrium is suboptimal when structural reforms and fiscal policy are implemented at a national level. Then, we prove that the optimal outcome cannot be obtained if structural reforms are dictated by a supranational institution. By contrast, we establish that the first best can be obtained either by a full‐fledged fiscal union or a rule on QE. Given the practical difficulties that the first of these two solutions have encountered in the EMU, a rule over QE provides a clear, easier and more credible way to make structural reforms and fiscal deficits achieve the levels that maximise the union's welfare.

Gaps review and improvement pathways in the assessment and management of collision risk in low Earth orbit

There is growing concern that collision risk in low Earth orbit is inadequately managed, necessitating new strategies. Based on discussions held at a multistakeholder workshop organized by EPFL in May 2021, this paper presents some challenges, or governance deficits, in the assessment and management of collision risk, and offers some paths for improvements in both domains. Addressing the governance deficits will require enhanced collaboration between states and between public and private actors.While there is a need to improve risk assessment and conduct thorough cost-benefit analyses of management strategies, achieving a complete picture is elusive, given the complexity of the problem and the range of response strategies available. However, the lack of a complete picture should not be a reason to postpone action, as sufficient information to make decisions regarding some management policies is available. Adopting a multidimensional approach and focusing on measures that have the potential for rapid improvements would help secure stakeholder buy-in and lay the groundwork for pursuing strategies that will likely be the most cost-effective in the longer term.

The global challenge of cancer governance

AbstractThe global cancer statistics are stark, accounting for nearly 10 million deaths in 2020, around one in six of all deaths globally. The World Health Organization estimates that 70% of these cancer deaths occur in low‐ and middle‐income countries and cancer will continue to rise as a proportion of deaths in these settings. We may usefully characterize cancer as a “social mess,” a set of interrelated problems and other messes including poverty and social determinants of health. One part of cancer's “messiness” is the governance deficit around cancer burden and regional inequities This policy paper assesses the field of global oncology governance and the interplay of legal instruments, soft law, national developments, donor activities, as well as partnerships, networks, and coalitions. Cancer governance is central to tackling cancer inequalities. Continuing to probe the complexities of cancer governance requires attention to market mechanisms, international agreements, soft power, political willpower, partnerships, collaborations and networks, and patient participation. Governance is inseparable from “paradigmatic” framings and cancer must be seen as a human rights issue.

Assignats or death: The politics and dynamics of hyperinflation in revolutionary France

Following a revolution precipitated by unsustainable government deficits, an explosion of paper money called the assignat caused a rapid increase in prices not seen in Europe again until the widespread adoption of discretionary fiat standards in the 20th century. The value of the assignat depended on the property the revolutionary government had expropriated to back it. The decision to retire the assignats from circulation using the revenue collected from the sale of the expropriated property was ultimately a political one. We examine how shifts in the political equilibrium affected the demand for the assignat and find evidence of two money demand shocks that correspond to the collapse of the political support for the assignats. Our estimates of the demand for the assignat indicate that the first shock reduced the demand for real balances by up to 70%. The second shock caused the negative relationship between real balances and inflation to break down entirely. Our results point to politics’ critical role in determining a currency’s fiscal backing and, thus, the demand for money.

THE DYNAMICS OF EU COUNTRIES DEBT IN THE CONTEXT OF THE GLOBAL COVID-19 PANDEMIC

The article examines the debt situation in European countries, especially in Italy and Spain, since these countries are leaders among European countries in terms of debt burden. The article examines both external and public debt, but more attention is paid to public debt, as it is more important than external debt for Italy and Spain. This situation is related to the fact that both countries are members of the European Union and the Eurozone, that is, they pay their foreign debt in euros, and the national currency is also the euro, which gives the countries more favorable conditions. For comparison with the countries of the euro zone, the article also examines the debt situation in Poland, since this country has kept its own currency, and for its economy the external debt is no less significant than the national debt. The debt situation in the countries is analyzed for the period from 2016 to 2021 and the beginning of 2022, since this period of time allows to assess the situation before and during the pandemic. According to the data analysis, Poland has the smallest public debt in 2021, and Greece has the largest, the article also examines such indicators as the yield of 10-year bonds of the countries, the public deficit and the foreign debts of Italy, Spain and Poland. In 2021, among the countries with the highest yield of 10 summer government bonds, Poland is leading, and in 2022, the country has the highest yield, this situation indicates the growth of risks for the country's economy and its stability. The largest increase in the government deficit in 2020 occurred in Italy, while the smallest in Poland. Regarding public debt, the situation is the same, the public debt of Italy in 2020 increased by 29.5%, Spain by 27%, and Poland by 13.9% of GDP. In the article, vector autoregressions were constructed to reveal the presence of dependence between budget deficits and current accounts of the balance of payments of the countries under study. The results of the modulation proved that there is such a dependence in Spain, which was also confirmed by linear regression and the indicators were found to be inversely related. The modulation results also proved the presence of an inverse relationship between the yield on the 10-year Spanish government bond and the current account. In Italy and Poland, the existence of a double deficit was not detected.

Impact of Inflation, Public Deficit and Foreign Direct Investment on National Savings: Case Study of Pakistan

The document attempts to investigate globalization and savings behavior in Pakistan. This paper takes into account the importance of globalization as a determining factor for national, private and public savings. The Ordinary Least Square method is used for empirical analysis. The analysis is performed in two stages. In the first phase, descriptive statistics and correlation matrix are described. In the second phase, multivariate analysis explains that globalization determines Pakistan's saving behavior. The study concludes that the consumer price index, the real interest rate and workers' remittances have a positive and significant influence on savings. The government deficit has a marginally significant impact on savings, while foreign direct investment has a negative but significant impact on national and private savings. Public savings are directly and insignificantly affected. Trade liberalization has a negligible and positive impact on national savings, but has a negligible negative impact on public and private savings. Given the role of globalization and the saving behavior in Pakistan, the government is suggested to provide a favorable environment and tax incentives to improve foreign direct investment. This will increase savings in the country. To this end, the country's industrial and agricultural sectors must be stable. Furthermore, it is necessary to create an investment friendly business environment in Pakistan.

Deficit sustainability and fiscal theory of price level: the case of Italy, 1861–2020

We test sustainability of the Italian government deficit over the period 1861–2020 using the fiscal theory of the price level (FTPL). This approach takes into account monetary and fiscal policy interactions and assumes that fiscal policy may determine the price level even if monetary authorities pursue an inflation-targeting strategy. We consider a cointegrated model with multiple structural changes to characterize the sustainability of public finances and the prevalence of monetary or fiscal dominance during subperiods. We also use recursive unit root tests for explosiveness to test fiscal sustainability and to detect episodes of potential explosive behaviour in Italian public debt. We find two structural changes for the public debt and one change in the primary budget surplus, the alternation of monetary and fiscal dominant regimes, as well as evidence of bubbles related to three episodes of the Italian fiscal performance. Our results reveal the sensitiveness of the primary balance and the debt paths to shocks hitting fiscal, macroeconomic, and financial variables.

Government Spending, Debt Management, and Wealth and Income Inequality in a Growing Monetary Economy*

AbstractThis paper compares the impact of government investment and government consumption on macroeconomic aggregates and inequality when the government deficit is money‐financed while maintaining a fixed debt‐money ratio. Real aggregate quantities are independent of the debt‐money ratio, as is wealth inequality, but income inequality is impacted. We also investigate the impact of these two forms of government expenditure on the macroeconomic aggregates and distributions, illustrating their sharply contrasting effects on the tradeoffs they entail. While government investment is more effective in increasing the growth rate and moderating inflation, it has a more adverse effect on long‐run income inequality.

Haushaltsstreit: Schuldenbremse, Steuern oder Ausgaben priorisieren?

Abstract Fiscal policy has increasingly become a field of conflict within the federal government in recent months. While the coalition agreement provides for compliance with the debt brake, investments in the energy turnaround, and further social and family policy reforms (such as basic child security, care reform, energy turnaround, infrastructure investments), the financial policy leeway is being reduced as a result of the energy price crisis and the interest rate turnaround. Thus, the Finance Minister’s plans point to drastically increasing expenditures for debt service. Since the debt brake aims at limiting government deficit, this directly reduces the leeway for primary expenditure if one refrains from tax increases and the debt brake takes effect in 2024. It remains to be seen whether the coalition’s previously planned projects can be implemented or whether new priorities should be set.

Household Savings and Negative Interest Rates

This paper analyses determinants of household savings in a model based on an extension of the disequilibrium savings theory. These extensions follow from the life-cycle, permanent-income and Ricardian-equivalence theories. Based on panel data of 20 countries from the period 2000–2020, fixed-effect least squares estimation procedures are used. The analysis provides evidence that negative interest rates lead to a statistically and economic significant increase in savings. This implies that stimulating household consumption with a monetary policy of negative interest rates is counter-productive. The positive effect of income uncertainty and lagged saving rates gets smaller for negative interest rates, weakening the support for the disequilibrium-savings theory. Larger government deficits increase savings even more when rates are negative, strengthening the Ricardian equivalence effect. The effect of negative interest on the predictions of the life-cycle and permanent-income theories is mixed.

Yellow Vests: Anti-austerity, pro-democracy, and popular (not populist)

In the context of neoliberalism and its consequences for the economy and for democracy, this article offers a distinct framing of the political nature of the French “Yellow Vests” (Gilets Jaunes) movement. Fundamentally, the movement should be understood as a popular and radically democratic response to the growing social inequalities of top-down austerity governance. The movement, which began in 2018, was spontaneous, autonomous, and decentralized, made up primarily of loosely connected citizen networks and popular committees not bound by political affiliation, social class, or age group. Responding to the neoliberal policies of the government of President Emmanuel Macron, symbolized by an unpopular fuel tax, the Yellow Vests quickly developed into a wide-ranging movement with diverse forms of action and organization. Despite a carrot-and-stick response from the government, the movement continues to the present, though its impact was greatest in the first year, which is the focus of this paper. Difficult to classify, we understand the Yellow Vests as an instantiation of “popular politics”, or an atypical social movement, primarily defined by and significant for its ardent anti-austerity and pro-democracy positions. The movement is only misleadingly labeled populist or associated with populism; there is a collective intellectual awakening of political consciousness, with participants and supporters articulating their structural dispossession and setting out to strengthen their common good through collective action and more direct democracy, not through party politics or existing institutions, nor through charismatic leadership or other forms of centralized or top-down politics. The Yellow Vests therefore signify the prospect of democratizing democracy, or re-democratizing democracy, in the face of the legitimacy deficits of neoliberal governance.