Government Deficits Research Articles

Fiscal and External Deficits Nexus in GIIPS Countries: Evidence from Parametric and Nonparametric Causality Tests

This paper investigates the relationship between fiscal and external deficits in five European Union countries (Greece, Ireland, Italy, Portugal, and Spain) using quarterly data for the period 1980:1–2020:1. Literature on the relationship between these series used linear techniques, but generally reported inconclusive results. Nonlinearity has been overlooked even though fiscal policy is likely to exhibit nonlinearity due to its sensitivity to political decisions. To capture this nonlinearity behaviour, nonlinear causality techniques are applied here in addition to the usual linear techniques used in the extant literature. The results show that there is evidence of unidirectional nonlinear causality from trade balances to government deficits in Greece and Italy, and a nonlinear unidirectional causality from government deficits to trade balance in Portugal. The results also indicate evidence of a nonlinear bi-directional causality between the trade and government balances in Ireland and Spain. The policy implication of these results is that governments of these countries need to address fiscal deficits to manage their trade balances. Policies that will improve the countries’ revenue base, such as tax and labour market reforms as well as capital market reforms to engender productivity and increase competitiveness, would be beneficial.

Managing Households’ Expectations with Unconventional Policies

Abstract Binding lower bounds on interest rates and large government deficits limit the scope of fiscal and monetary policies to stimulate households’ spending through financial intermediaries and firms. Policy makers have thus been implementing unconventional policies that aim to increase households’ spending directly through managing their expectations. We first show theoretically and empirically that higher inflation expectations increase households’ consumption. We then design a difference-in-differences strategy to assess the effectiveness of unconventional fiscal policy and forward guidance, both of which aim to raise aggregate demand via managing expectations. Whereas unconventional fiscal policy increases households’ expectations and spending, forward guidance announcements do not

Are landscape approaches possible under authoritarianism? Multi-stakeholder governance and social transformation in Myanmar

Landscape Approaches have been proposed as a transferable model of multi-stakeholder governance, yet assume conditions of ideal speech, trust, and transparency that seem untransferable to authoritarian regimes. This paper argues that building Landscape Approaches under authoritarian conditions cannot be based on a governance deficit model of awaiting idealized political conditions, but instead needs to pay attention to how local social and political structures influence what is deliberated, and by whom. The paper presents evidence from a multi-stakeholder environmental intervention around Lake Indawgyi in Kachin State, Myanmar, to draw lessons for transferring Landscapes Approaches under conditions of political authoritarianism, sporadic violent conflict, and rapid socio-economic change. Using information gathered from village surveys and interviews with policymakers, the paper analyzes how multifunctionality, stakeholder engagement, and deliberation are achieved, and with whose influence. The paper argues that common principles of Landscapes Approaches need to acknowledge more how state-led agendas can influence agendas and participation in conservation; but also how the composition and interests of stakeholders are not fixed under socio-economic transformation. Focusing on local and contextual drivers of environmental change and political inequality are more useful for transferring Landscape Approaches to authoritarian regimes than adhering to optimistic principles, or testing associations between variables without reference to context. Indeed, the latter risks depoliticizing conflictual processes, and implicitly endorsing political inequalities. The 2021 military coup in Myanmar has added to these inequalities.

Macroeconomic Fundamentals and Budget Deficit Nexus: Evidence from a Developing Economy

The increasing budget deficit of the Nigeria’s government in the past few decades with its attendance impact on the economy is worrisome. This study examines the impacts of macroeconomic fundamentals on Nigeria’s fiscal deficit. An error correction model was specified and estimated. In terms of sign and size, the result showed that, there is an inverse relationship between budget deficit and the external reserve. This implies that an increase in the external reserve, leads to a decrease in budget deficits. A unit increase in external reserves resulted in 12.4 percent fall in budget deficit. In contrast, however, national income and interest rate showed a positive relationship with budget deficit. Increase in income expands the potential and propensity to spend. Lenders are equally more disposed to lend to the government because of the presupposed economic prosperity. The lagged value of the error correction term has the expected inverse sign of -0.42, and highly significant. The negative value of the error correction model further supports the co-integration relationship among the variables. Thus, macroeconomic variables influence budget deficits. Economic policies which minimizes macroeconomic fluctuations is paramount in curbing the negative impacts of increasing government deficit in the economy. Received: 2 May 2021 / Accepted: 15 June 2021 / Published: 8 July 2021

Responsible Fiscal Policy and Economic Development: A Challenge for Latin America After COVID-19

The COVID-19 pandemic has made it evident that the deep global economic-financial crisis of 2007–2009 has not been overcome. Instability and uncertainty have reached extreme levels in all public and private spheres, demanding to revolutionize the economic structure, promote innovation in methods to manage production, generate originality in the social and institutional organization of the State and to accelerate the advent of new energy sources to promote in unprecedented ways the relationship between human beings and nature. In recent years and during the pandemic, in Latin American economies, unemployment, underemployment and informal employment, public debt, and inflation rates have increased, while the real income of governments fell. This situation is accompanied by persistent operating account deficits, public and private debt negotiations, high interest rates, periods of stability or appreciation in the exchange rate, volatility of foreign capital flows and flight of national capital; all being favorable elements for the mainstream policy based on fiscal discipline. In a post-pandemic stage, during which income concentration accelerates and the prices of basic necessities such as food and medicines increase, the planned government deficit, taking into account the heterogeneity among countries in the region, could avoid another lost decade with a multiplier effect on socio-economic development.

Through Privatisation, Government is Not Evading its Responsibility of Providing Health-Care to The Inhabitant

The strategy of price liberalisation and privatisation had been implemented in Sudan over the last decade, and has had a positive result on government deficit. The investment law approved recently has good statements and rules on the above strategy in particular to pharmacy regulations. Under the pressure of the new privatisation policy, the government introduced radical changes in the pharmacy regulations. To improve the effectiveness of the public pharmacy, resources should be switched towards areas of need, reducing inequalities and promoting better health conditions. Medicines are financed either through cost sharing or full private. The role of the private services is significant. A review of reform of financing medicines in Sudan is given in this article. Also, this communication highlights the current drug supply system in the public sector, which is currently responsibility of the Central Medical Supplies Public Corporation (CMS). In Sudan, the researchers did not identify any rigorous evaluations or quantitative studies about the impact of drug regulations on the quality of medicines and how to protect public health against counterfeit or low quality medicines, although it is practically possible. However, the regulations must be continually evaluated to ensure the public health is protected against by marketing high quality medicines rather than commercial interests, and the drug companies are held accountable for their conducts.

The state, EndSARS protests and human rights violation in Nigeria

In November 2017, there was an online protest against police brutality and highhandedness in Nigeria. By October 2020, the citizens’ discontent and dissatisfaction with the activities of the police led to a mass revolt against the institution, specifically against the Special Anti-Robbery Squads (SARS) of the force. The response of the Nigerian state to the protest was total repression and subjugation of the demonstrators. Given the scale of the protest and the government’s response, this momentous event has attracted scholarly attention. The extant literature has identified governance deficit, illiteracy of police officers, the dynamics of the political economy and youth activism as factors that fueled the protest. The present study, therefore, explores the character of the state in the post-colonial society as a link towards the understanding of the fundamental issues that triggered the protests. Through the use of secondary sources of data collection and content analysis, the work found out that there is a trend and pattern of authoritarian governance and violation of human rights by the Nigerian state, which seems to have emanated from the long years of military rule and colonisation. The implication of the foregoing is that the state ought to imbibe democratic ethos as a condition for upholding the fundamental human rights of its citizens.

Government Spending, Budget Policy, and Wealth and Income Inequality in a Growing Monetary Economy

This paper compares the impact of government investment and government consumption expenditures on macroeconomic aggregates and inequality in an economy in which the government deficit is money-financed, while maintaining a fixed ratio of debt-money. Most real aggregate quantities are independent of the debt-money ratio, which has only weak short-run impacts on wealth and income inequality. We also investigate numerically the impact of these two forms of government expenditure on the macroeconomic aggregates and distributions. Though they have sharp contrasting effects in terms of the tradeoffs they entail, their impact is moderate. Our simulations suggests that there is scope for substantially more intensive government intervention in the recovery of the post-pandemic economy, without serious adverse consequences or encountering issues of sustainability.

Are Policy Analogies Persuasive? The Household Budget Analogy and Public Support for Austerity

AbstractPublic opinion on complex policy questions is shaped by the ways in which elites simplify the issues. Given the prevalence of metaphor and analogy as tools for cognitive problem solving, the deployment of analogies is often proposed as a tool for this kind of influence. For instance, a prominent explanation for the acceptance of austerity is that voters understand government deficits through an analogy to household borrowing. Indeed, there are theoretical reasons to think the household finance analogy represents a most likely case for the causal influence of analogical reasoning on policy preferences. This article examines this best-case scenario using original survey data from the United Kingdom. It reports observational and experimental analyses that find no evidence of causation running from the household analogy to preferences over the government budget. Rather, endorsement of the analogy is invoked ex post to justify support for fiscal consolidation.

Is the Right to Housing Being Realized in Canada? Learning from the Experiences of Tenants in Affordable Housing Units in a Large Canadian City

Background: Housing is a critical determinant of health and a basic human right. Historically, Canada’s housing policies have not been grounded in a human rights-based approach. In the 1990s, a policy shift prioritized efficiency in government spending and deficit reductions over the provision of many social programs including affordable housing. With various levels of government now acknowledging and recognizing the need for more affordable housing, it is important to understand tenant experiences, perspectives, and needs to ensure policies and practices are supporting individuals appropriately. Methods: In total, 161 individuals participated in this study by completing online or in-person questionnaires. Results: Exploratory analysis of results revealed that although there were some positive benefits to affordable housing, many tenants continued to struggle financially, physically, mentally, and emotionally without adequate supports in place. Conclusions: These findings highlight the need for affordable housing to be part of a system of care that provides supports along a continuum. The results further reiterate that placing a person or family in affordable housing does not guarantee that their lives have improved. Without robust affordable housing models that prioritize the empowerment of individuals and families, housing policies may fail to fulfil the right to safe and affordable housing for Canadians, especially when considering historically marginalized populations.

Re-conceptualizing sustainable urban sanitation in Uganda: why the roots of \u2018Slumification\u2019 must be dealt with

BackgroundCountry-wide urbanization in Uganda has continued amidst institutional challenges. Previous interventions in the water and sanitation sector have not addressed the underlying issues of a poorly managed urbanization processes. Poor urbanisation is linked to low productivity, urban poverty, unemployment, limited capacity to plan and offer basic services as well as a failure to enforce urban standards.MethodsThis ethnographic study was carried out in three urban centres of Gulu, Mbarara and Kampala. We explored relationships between urban livelihoods and sustainable urban sanitation, using the economic sociology of urban sanitation framework. This framework locates the urbanization narrative within a complex system entailing demand, supply, access, use and sustainability of slum sanitation. We used both inductive and deductive thematic analysis.ResultsMore than any other city in Uganda, Kampala was plagued with poor sanitation services characterized by a mismatch between demand and the available capacity for service provision. Poor slum sanitation was driven by; the need to escape rural poverty through urban migration, urban governance deficits, corruption and the survival imperative, poor service delivery and lack of capacity, pervasive (urban) informality, lack of standards: ‘to whom it may concern’ attitudes and the normalization of risk as a way of life. Amidst a general lack of affordability, there was a critical lack of public good conscience. Most urbanites were trapped in poverty, whereby economic survival trumped for the need for meeting desirable sanitation standards.ConclusionsProviding sustainable urban livelihoods and meeting sanitation demands is nested within sustainable livelihoods. Previous interventions have labored to fix the sanitation problem in slums without considering the drivers of this problem. Sustainable urban livelihoods are critical in reducing slums, improving slum living and curtailing the onset of slumification. Urban authorities need to make urban centres economically vibrant as an integral strategy for attaining better sanitation standards.

Quantitative analysis of health insurance reform in China: Pure consolidation or universal health insurance?

We quantify the macroeconomic and welfare effects of a social health insurance reform that occurred in China in 2016 using a two-sector model with endogenous rural-to-urban migrant workers. The calibrated model mimics the rural-to-urban migration and rural-urban wage gap from 2007 through 2016. We find that the health insurance reform depresses rural-to-urban migration and leads to reallocation of labor and capital in both the rural and urban sectors. As the result, we find that the consolidation of premium and reimbursement expands the rural-urban wage gap by approximately 6.8% but universal health insurance coverage narrows the rural-urban wage gap by approximately 0.9%. Keeping the government deficit unchanged, the welfare results favor universal health insurance relative to pure consolidation.

On Federal Deficits and Debt, Monetary and Fiscal Policy

President Biden signed a $1.9 trillion COVID relief package (the “American Rescue Plan”) on March 11, 2021. Without a corresponding increase in taxes, this plan has set off alarm bells for those concerned about the expansion of government deficits and debt. Mainstream economists have raised issues of excessive inflation, “crowding out” of private sector investment, and an unacceptable repayment burden on the young and future generations.The purpose of this paper is to demonstrate that these concerns are based on a misunderstanding of the role played by the deficit, debt, and taxes in the U.S. economy, even a misunderstanding of how certain parts of the U.S. financial system actually work. The paper explores the beginnings of paper (fiat) currency and government bonds in the U.S. and demonstrates that without federal deficit spending, the private sector would lose steam and face a recession. Without federal bonds, the government would lose a lever to control interest rates and inflation, not to mention the private sector’s loss of a risk-free, interest-bearing alternative to cash. This is not to say all deficits (or all government expenditures, for that matter) are good. Some actually do cause excessive inflation, exacerbate wealth disparity or have other harmful effects. These are serious problems and they need to be addressed effectively. Simply raising taxes in an amount to match the spending is an example of an approach with limited effectiveness.The ideal is for large spending programs to be designed to be “inflation neutral,” that is, to include federal revenues (taxes) that are specifically designed to mitigate the inflationary impact of spending, to the extent and place it is expected to emerge. If that is not possible, then increased taxes, while possibly serving political, social, or other purposes, are not the solution to address excessive spending-induced inflation.The problem is, when excessive inflation emerges, the most frequently used tool for addressing it, monetary policy, has the pernicious effect of exacerbating the hurt on the most vulnerable citizens, lower-paid workers and, especially, people of color. This paper will also address deficiencies in fiscal and monetary policies, ideally before they actually become serious.In his press conference on March 25, 2021, President Biden identified the "battle between the utility of democracies in the 21st century and autocracies" as the real threat to the United States, noting that “We’ve got to prove democracy works.” The point of this paper is that only with a proper understanding of how our financial system actually works can our leaders make the best decisions impacting our nation for decades to come.

Government debt and fiscal execution efficiency

Governments have used deficit policies in recent years, yet many still face fiscal debt problems. Thus, this research uses Range Directional Measure Dynamic Directional Distance Function model with negative data to explore the financial efficiency of local governments in Taiwan from 2011 to 2018. This article has three major contributions: (1) The research uses RDM Dynamic DDF model with negative data to solve the problem of negative values on input and output data and uses dynamic models to make up for the deficiencies of past research. (2) Due to the differences in regions, local governments have different fiscal budgets. Therefore, this article uses the Wilcoxon Test to explore the efficiency differences of local governments in different regions. (3) This article analyzes the impact of central subsidies and government deficits (debts) of local governments on fiscal efficiency, and discusses the efficiency of government fiscal execution. The results are as follows. (1) Seven counties and cities with the best efficiency, and seven local governments with poor efficiency. (2) The fiscal performances of outlying islands and eastern local governments are better than those of western local governments. (3) Kaohsiung City has the highest accumulated debt and Tainan City exhibits poor financial performance.

A game-theoretic analysis of fiscal policy under economic growth from the perspective of MMT

We present a game-theoretic analysis of fiscal policy under economic growth from the perspective of MMT using a simple two-periods overlapping generations (OLG) model with pay-as-you-go pensions. We show the following results. 1) Sustained budget deficit is necessary to maintain full-employment under economic growth driven by population growth or technological progress. 2) An excessive budget deficit triggers inflation, and after one period inflation full-employment is maintained by sustained budget deficit with constant price. 3) Insufficient government deficit causes involuntary unemployment, and we need extra budget deficit over its steady state value to recover full-employment. These budget deficits need not be, and must not be redeemed. Therefore, if it is institutionally and legally possible, they should be financed by seigniorage not by public debt.

Heterogeneous effects of fiscal rules: The Maastricht fiscal criterion and the counterfactual distribution of government deficits✰

This paper estimates the effect of the Maastricht treaty’s fiscal criterion on the distribution of EU countries’ general government deficits. Using a treatment effects approach, we find that the 3 percent deficit ceiling acts as a “magnet”, increasing the number of observations around the threshold by 20 percent, while reducing the occurrence of both large government deficits and surpluses. Our results imply that the rule had an effect on deficits even when it was not complied with. Country-specific results under the rank invariance assumption indicate that all countries have seen their fiscal position improve on average because of the deficit rule.

Fiscal Policy in Europe: Controversies over Rules, Mutual Insurance, and Centralization

We discuss the main fiscal policy issues in Europe, focusing on two that are at the core of the current debate. The first is that the government deficit and debt were, from the outset, the key objects of contention in the debate that led to the creation of the Eurozone, and they still are. The second issue is that a currency union implies the loss of a country-specific instrument, a national monetary policy. This puts a higher burden on fiscal policy as a tool to counteract shocks, a burden that might be even heavier now that the European Central Bank has arguably reached the Zero Lower Bound. Two obvious solutions are mutual insurance (or risk-sharing) amongst countries and a centralized stabilization policy. Yet both have been remarkably difficult to come by, especially due to political constraints. We review and discuss the relative merits of several proposals for increased insurance or centralization, or both. We conclude with an early discussion of the implications of the COVID-19 crisis for European fiscal policy reform and an assessment of the current fiscal measures.

Governance Deficit, National Security and the Development of Nigeria: ENDSARS Protest Perspective

Nigeria is the most populous country in Africa with financial fortunes bolstered by enormous natural endowments and human resources. Yet Nigeria is faced with myriads of economic and socio-political woes and has earned the infamous sobriquet of the world’s poverty capital. Scholars and other stakeholders have not only wondered why Nigeria, the supposed giant of Africa is trailing behind in anything positive, but also have consistently observed that Nigeria’s endemic problems are anchored on ill- governance. The paper interrogated Nigeria’s national security which has been compromised through incessant and runaway corruption, the activities of boko haram terrorists, the daily killings by the Fulani herdsmen and other criminal gangs in Nigeria, menacing poverty, dearth of infrastructure, institutions with weak performance capacities, a governance elite that is far away from the aspirations of the governed and too removed that it has become irresponsible and insensitive to the plight of its subjects, which was adequately exposed through the ENDSARS protests in the country in early October 2020. A qualitative research, the paper is anchored on Social Contract as its analytical theory. The paper’s findings, amongst others, include a governance deficit foisted by self-styled leadership of a schizophrenic nature that has caused a reversing development, unemployment, human and income poverty, a recourse to inflaming ethnic, tribal and religious sentiments to cover up their primordial interests as well as maladministration and several other challenges arising from their prebendal nature. The recommendations include, among others: elimination of machine politics which is a progenitor of bad leadership and a culture of impunity with negative effects on human development and national security; a resort to entrenching human security if Nigeria intends to achieve national security which will usher in national integration and national development, as well as attract foreign investment and international goodwill.

Compliance with regional commitments on sexual and gender based violence in Uganda: Promoting external visibility to achieve internal viability

This paper examines Uganda‘s compliance with commitments of the International Conference on the Great Lakes Region (ICGLR) on Sexual and Gender Based Violence (SGBV). The findings show that Uganda has partially complied with these commitments mainly by incorporating them into national laws and policies. Compliance is primarily motivated by domestic factors. Firstly, it aims at addressing a real need given that SGBV is a pervasive phenomenon in this country. Secondly, and in accordance with international relations perspective, this compliance, though partial, advances additional agendas, namely (1) promoting the country‘s positive image while diverting international and regional attention from internal governance deficits including controversial presidential elections of 2011 and 2016, (2) responding to advocacy pressure from women-led organisations‘ and (3) achieving political correctness in the eyes of national and international partners.

Inflationary Impact of Funding Options for Budget Deficits in Nigeria

This paper investigates the inflationary impact of the various financing options for the federal government budget deficit which has accumulated overtime. Using Auto Regressive Distributed Lag (ARDL) methodology and quarterly data over the period 2000Q1 to 2017Q2, the study found significant relationship between inflation and the current financing options of the Government. Overall, the result of our ARDL model affirm that the impact of fiscal spending in Nigeria on inflation is captured more in the short-run since none of the variables is significant in the long-run. In addition, the use of Banking System Financing to fund government deficits has better potentials as the optimal choice because its impact on inflation is insignificant. Federal Government Bonds as a tool for financing budget deficits is also considered an optimal choice because though it causes inflation to rise by the second quarter, but its impact on inflation is expected to fizzle out in the long-run. Ways and Means Advances on the other hand, was shown to have the highest inflationary impact and as such, its use as a tool for financing government deficit should be discouraged. We, therefore, recommend a couple of appropriate policy options for financing budget deficits in Nigeria namely monetary financing and the issuance of federal government bonds. On the policy side, more efficient public expenditure management. Capital market, co-financing arrangements with pension funds and issuance of project-tied bonds, would be beneficial.