Long-term Fiscal Policy Research Articles

Brazilian Fiscal Policy and Its Procyclical Nature: A Long-Term Analysis

Fiscal policy should be contractionary during economic expansion and expansionary during recessions. The objective of this article is to investigate the nature of long-term discretionary fiscal policy in Brazil in relation to the level of economic activity and the terms of trade. A fiscal policy variable without cyclical effects was chosen, and the results of the cointegration analysis indicate that long-term fiscal policy is destabilizing; this findings parallels those in the literature. However, in regard to trade cycles, this policy prevents their amplification.

The Relationship between the Budgetary Fiscal Policy and Macroeconomic Indicators, a Comparative Study of Germany-France versus Romania-Bulgaria

Abstract Fiscal-budgetary policy in the current economic context is a challenge for all EU27 governments. The literature, although consistent on this topic, still does not provide sufficient modeling-based solutions for decision-makers. The objectives of the study are to identify relevant indicators for fiscal-budgetary policy analysis, to build a related statistical database, to conceptualize a fiscal-budgetary policy efficiency model, to test and validate this model and the working hypotheses, to formulate relevant conclusions on the influence of macroeconomic indicators on fiscal-budgetary policy elements and to establish a ranking of fiscal-budgetary efficiency at the level of the four Member States in the European context. As a result, our scientific approach becomes necessary and is based on econometric research on the correlations between fiscal-budgetary policy elements and the evolution of macroeconomic indicators. The main results of the study are the conceptualization of the regional model of correlation between budgetary fiscal policy and macro indicators and the identification of the differentiated influences of macroeconomic elements on the fiscal-budgetary policy according to the level of development of the Member States. The results are useful for supranational decision-makers in setting medium- and long-term fiscal and budgetary policy measures, as well as for economic entities that can adjust their macroeconomic risk behavior and future economic development strategies based on this information.

Schuldentragfähigkeit mit impliziten Staatsschulden: Replik und Erwiderung

Abstract Some analyses examining the long-term sustainability of government debt use the term implicit government debt. This is an approach that is occasionally criticized. However, the concept of implicit government debt is necessary to evaluate the scope for long-term fiscal policy and to analyze the consequences of demographic change. Krämer and von Weizsäcker reject the assumption of a general positive interest rate-growth differential that is often made in these sustainability analyses. Priewe focuses on the controversy surrounding implicit government debt and explains a theory of interest rates that differs from Krämer and Weizsäcker but leads to similar results.

An analysis of the government revenue–expenditure nexus: A wavelet approach for the Romanian case

The turbulent economic environment of the last decades, the social effects associated with the responsibilities of the state to support the development of the green economy, and the increase of involvement in sustainable social inclusion make it necessary to increase budget revenues. Evaluating the link between government revenues and expenditures is a complex approach defined by several factors related to tax compliance and the perception of the efficiency of the expenditure. In addition, recent endogenous and exogenous shocks have considerably influenced the fundamentals of long-term fiscal policy and budget balancing. The type of relationship between government revenue and expenditure is analyzed to identify the leading and lagging variables, and the wavelet approach and monthly data for Romania for 2000–2021 are used. In various periods, the revenue led the expenditure, or vice versa. The spend–tax and tax–spend hypotheses are confirmed for different periods. The analysis highlights the intervals of behavioral asymmetry, which helps to monitor the implementation of fiscal policy. Also, the results could represent a starting point for outlining measures in the fiscal policy area.

Fiscal foresighting: analysis of researches

In the context of the rapid technology development and globalization transformations, predicting changes in the economy, which affect fiscal system, is extremely relevant. Therefore, fiscal foresight as a mean of predicting a fiscal policy development in the long run is becoming an integral part of tax policy and economic development elaboration in many countries of the world. The objective of the paper is to analyse theoretical aspects of fiscal foresight, as well as foreign and national experience in fiscal foresights’ preparation to identify long-term factors and indicators that will have a significant impact (both positive and negative) on a fiscal system in a distant future. It was established that fiscal foresighting is a process of collecting data on the future to assess long-term prospects for the stability of tax revenues and budget expenditures in the face of changes in macroeconomic and other factors affecting the national economy. The main components of fiscal foresighting are identifying and monitoring trends, scanning and monitoring the time horizon, identifying risks and problems, and developing scenarios. Analysis of foreign fiscal foresights has shown that they become the basis for the development of shorter-term plans for the advance of fiscal systems, pointing out the main directions of fiscal policy, risks and barriers to achieving the goals. However, conducting an interstate analysis of a fiscal foresight remains problematic. This is due to the fact, that there is no single methodology for preparing fiscal foresights, countries choose different research horizons and update periods. It was defined that the basis for the goal-setting of national fiscal foresights was taken: reducing the level of income and welfare inequality, fighting against tax evasion, the transition to a "green" economy, promoting the digital development, stabilizing the socio-demographic condition with an unambiguous conclusion about the need to make adjustments to a national tax system. Countries have chosen as the main long-term fiscal policy actions: "rebalancing" the tax structure from direct taxes on labour and capital to indirect taxes on consumption and taxes on property and resource use; the transition from models based on ownership/sales to models based on the use of assets/goods/services; the introduction of new taxes, changes in rates, etc., the use of digital technologies in the tax payment and administration processes. The analysis of the socio-economic situation in Ukraine was carried out in order to identify factors that are critical in the development of the main vectors for the advance of the country's fiscal system in the future. These are recognized as: demographic and social changes, "depletion" of demand in the face of increased competition and the dependence of the export-oriented economy on the international environment and turbulence in the international economy, income inequality, digitalization, tax evasion, environmental degradation. Based on the results of the analysis of the "National Economic Strategy for the Period up to 2030", it was established that the actions indicated in the Strategy can become the initial data for the development of the first national fiscal foresight as a basis for assessing the long-term sustainability of the current fiscal system , identifying opportunities and risks of transformations of the fiscal policy of Ukraine under the influence of megatrends and intrastate changes associated with the peculiarities of the country's socio-economic development.

MANAGING PUBLIC DEBT: THE CASE OF SAUDI ARABIA

Managing public debt efficiently and effectively requires good management of public finances and a high quality of performance by financial and non-financial institutions in a given country. Likewise, the quality of a nation?s economic and financial plans is an essential element in making the most of public debt and reducing the economic risk of default. This paper analyzes the levels of efficiency and effectiveness of public debt management in Saudi Arabia from 1991 to 2019 by looking at the relationship among the following variables: oil and non-oil revenues out of the total revenues, the current and capital expenditures of total expenditures, the ratio of deficit/surplus to GDP, and the general government?s gross debt percentage of GDP. The outcome of the study suggests that the current system of managing the state?s financial affairs and public debt might be not suitable for achieving the goals of the Saudi strategic plans. Therefore, the study calls for economic and financial policies to be developed to include all elements that affect the economy (e.g., governmental performance). The study also calls for the adoption of a long-term fiscal policy that does not change as state revenues increase and for the support of the implementation of the principles of good governance in the public finance system (e.g., strengthening public participation in the process of making the public budget and supporting the independence of the financial supervision agencies).

Rethinking Fiscal Policy in Oil-Exporting Countries

We examine the existing fiscal policy paradigm in commodity-exporting countries. First, we argue that its centerpiece—the permanent income hypothesis (PIH)—is not consistent with either intergenerational equity or long-term sustainability in the presence of uncertainty. Policies to achieve these goals need to be more prudent and better anchored than the PIH. Second, we point out the presence of a volatility tradeoff between government spending and wealth and re-assess long-held views on the appropriate fiscal anchors, the vice of procyclicality, and the (im)possibility of simultaneously smoothing consumption and ensuring intergenerational equity and sustainability. Finally, we propose what we call a prudent wealth stabilization policy that would be more consistent with long-term fiscal policy goals, yet relatively simple to implement and communicate.

Consideration of keys to solving problems in long-term fiscal policy through laboratory research

People tend to think only about their immediate benefits, as well as to be extremely optimistic. Coupled with changes of generations due to limited lifespan, this becomes a source of problems in long-term fiscal policy. The hypothesis of “silver democracy”, based on the rational voter hypothesis, argues that elderly voters prevent sustainable policy choices. It is therefore urgent to discuss how to design a policy decision framework which ensures that sustainable policies can be socially selected. In a democracy, as well as voting, the role of deliberation is emphasized. Assessing the effectiveness of deliberation in promoting sustainable policy decisions, which is called the hypothesis of “deliberative democracy”, is necessary. Through the use of questionnaires on the selection of hypothetical fiscal policies, the validity of hypotheses and keys to designing a decision framework to solve the problems are considered. Options of hypothetical fiscal policy are discussed among participants. The relationship between participants’ personal attributes and selection is examined. The role of an imaginary future generation (IFG) (Saijo in Future design: Incorporating preferences of future generations for sustainability, Springer, New York, 2018), a virtual representative of a future generation, is randomly assigned to some of the participants, and the nature of collective decision making is elucidated. There are several findings. Public judgment based on altruism works together with personal interests in the selection of policy. As the age of the participants increases, support for sustainable policies is weakened. However the older generation make their choices more on the basis of public judgement than personal interests. Hence the simple hypothesis of “silver democracy” seems exaggerated. Furthermore, providing information on the personal burdens imposed by policies to the participants reduces support for sustainable policies through “privatization” of policies. Moreover, attitudes toward uncertainty; prospects of the future economy and values of future generations, affect choices. The effect of introducing an IFG toward sustainable choice is confirmed; however the results also suggest that the evidence for promoting sustainable decision by deliberation is not necessarily certain. A randomly allocated role of IFG would not be able to complete the role of representing voices of the future. Finally, based on these findings, some keys to solving problems in long-term fiscal policy are presented.

Fiscal Soundness and Economic Growth: An Economic Program for Ontario

Ontario is on an unsustainable fiscal course. The government must act to bring the long-term cost of government in line with the revenue-raising capacity of the province. This Economic Program shows a number of policy directions in areas as diverse as healthcare, labour and education policy, tax reform, housing and municipal policy, as well as electricity and greenhouse gas policy, that can balance increases in spending with the generation of new revenues and cost-savings measures. This Economic Program adopts the fiscal presentations of the independent officers of the Ontario legislature – the Auditor General and Financial Accountability Office – as the authoritative sources for the short-, medium- and long-term fiscal outlook. The medium- and long-term fiscal outlook for Ontario is dire. This Economic Program recommends that the government restate the province’s books to reflect the Auditor General’s accounting treatment of pension assets and electricity-sector debt. Further, the government should adopt a sound long-term fiscal policy – which requires surpluses, not just balanced budgets – that meets the government’s debt-to-GDP target ratio of 27 percent. In healthcare, which already consumes roughly half of the province’s own-source revenues, policymakers will face continued cost pressure. This Economic Program views progress in addressing this issue – in addition to limiting public and private gaps in coverage for prescription drugs and mental health – as a critical challenge. This Economic Program also focuses on reforms to labour and employment legislation to increase the flexibility of existing minimum wage policies and employment and labour laws. It also focuses on improving the skills of Ontarians seeking mid-career improvements, and improving the performance of Ontario’s K-12 and post-secondary education systems. With recent United States tax reform considerably raising the attractiveness of the United States for new business investment, this Economic Program takes steps to improve the competitiveness of the province as a destination for firms to make investments and for workers to live. With regard to housing and municipal policy, this Economic Program seeks to lower the cost of housing across the province by taking steps to reduce barriers to construction and eliminating economically costly rent controls and transfer taxes. It would also fundamentally change the relationship between municipalities and the province by granting cities the ability to put their budgets on a sound financial footing and allow them more flexibility in financing infrastructure. Finally, no policy area has been more controversial than Ontario’s greenhouse gas and electricity policies. This Economic Program would preserve the best parts of the current government’s plan, while cutting ineffective policies and reducing costs to households. This Economic Program would seek long-term cost savings in the electricity sector, as opposed to short-term fixes that only add to the long-term cost of energy.

Government-Expenditure Crowding-In Effect and Lack of Economic Diversification in Oil-Producing Countries: Lessons from Alberta

In this paper, I examine the impact of oil price shocks, government expenditure, and Chinese investments in the energy sector on Alberta’s economy. The aim is to understand how government expenditures transmit oil-price changes to the economy, thereby exacerbating economic cycles in Alberta, an oil-exporting region, and to provide policy recommendations that could help Alberta benefit from future oil price drops. To my knowledge, I am the first to examine the effects of oil price changes, government expenditures, and investments from China on Alberta’s economy, accounting for inter-industry and household demand effects. I find evidence that Alberta’s manufacturing sector depends heavily on the oil and gas sector; government expenditure has a crowding-in effect that exacerbates economic cycles; Chinese investments in Alberta’s energy sector contribute positively to Alberta’s economy; and West Texas Intermediate (WTI) oil price is an important factor. I use actual WTI values and oil future values to simulate and forecast key explanatory variables. The results are robust to different variations of the model, and when creating in-sample and out-of-sample forecasts. The results of my analyses yield three policy recommendations for Alberta: (a) implement a long-term counter-cyclical fiscal policy, preferably during a boom period; (b) diversify both the oil and gas sector (to increase petroleum product exports) and the manufacturing sector (to increase non-oil related production); and (c) open the economy to additional foreign investment.

Correlation between Government and Economic Growth –Fiscal Policy during the Transition in Albania

In this paper we tried to analyze some aspects of fiscal policy in our country, without pretending to give our own sample. Fiscal policy is the use of government expenditures and taxes which affect economic activity. Determination of fiscal policy in a given year takes into account the time virtually the past (current socio-economic status) and the implications for the future (fiscal sustainability).In general the cases dealt the role fiscal policy plays toward economic growth. The analysis many focused both in the theoretical treatment as well as the role that fiscal policy has played in our country, going even further in some suggestions for the future. The most important issue was addressed in the long-term fiscal policy view, fiscal sustainability. In the final everything is addressed to the role of fiscal policy on social issues.The role that fiscal policy should play in economic and social development has long been a controversial issue and is still different among economists. While a restrictive fiscal policy means increasing taxes and cut government spending. Fiscal policy may be expansionary or restrictive. An expansionary fiscal policy means a reduction of direct and indirect taxes and increased government expenditures. Choose between two types of fiscal policy is not an easy decision, both in terms of the current state of the economy, as well as political decisions.

Core Concepts of Institutionalist Public Finance: Problem Solving, Institutional Analysis, Strategic Choice, and Stakeholder Engagement

Citizens and policymakers in many nations are becoming increasingly concerned about large budget deficits and mounting long-term fiscal policy challenges. At the same time, slow economic growth in the United States and Europe is causing some people to demand more government spending (and lower taxes) and others to question the efficacy of fiscal policy. Against that backdrop, institutional economists are exhibiting renewed interest in the field of public finance. This article responds by outlining four core concepts of institutionalist public finance: problem solving, institutional analysis, strategic choice, and stakeholder engagement. What distinguishes the perspective of institutionalism from that of neoclassical economics, today’s dominant economic paradigm, is described in the course of the discussion. The core concepts of institutionalist public finance offer a coherent approach to the study of fiscal policy questions. Those concepts were first fashioned decades ago, but remain relevant: institutionalism continues to provide a solid basis for constructive analyses of fiscal challenges.

The role of macroeconomic policy in rebalancing growth

The aftermath of the global financial crisis of 2007–2009 has called the export-led growth model of many Asian economies into question. This paper describes the contribution that macroeconomic policy can make to promote a rebalancing of growth away from dependence on exports to developed economies to a more sustainable pattern of growth centered on domestic and regional demand. This represents a significant departure from the traditional uses of macroeconomic policy to stabilize the economic cycle and achieve stable and low inflation. The evidence suggests that macroeconomic policy can successfully contribute to growth rebalancing. Policy measures not only can affect aggregate demand directly, but can also affect it indirectly via their “microeconomic” impacts on private sector behavior such as the household savings rate. Although in the long-term fiscal policy should be balanced to maintain government debt stability and avoid crowding out of private investment, there may be substantial scope to expand monetary and fiscal policy in the medium-term to offset the deflationary effects of an appreciating currency during periods of current account reversal. Previous experience suggests that most of the needed stimulus can be provided by monetary policy, with only a supplementary role to be played by fiscal policy. Moreover, Asian economies with large current account surpluses tend to have sufficient fiscal space.

The Role of Macroeconomic Policy in Rebalancing Growth

The aftermath of the global financial crisis of 2007-2009 has called the export-led growth model of Asian economies into question. This paper describes the contribution that macroeconomic policy can make to promote a rebalancing of growth away from dependence on exports to developed economies to a more sustainable pattern of growth centered on domestic and regional demand. This represents a significant departure from the traditional uses of macroeconomic policy to stabilize the economic cycle and achieve stable and low inflation. The evidence suggests that macroeconomic policy can successfully contribute to growth rebalancing. Policy measures not only can affect aggregate demand directly, but can also affect it indirectly via their microeconomic impacts on private sector behavior. Although in the long-term fiscal policy should be balanced to maintain government debt stability and avoid crowding out of private investment, there may be substantial scope to expand monetary and fiscal policy in the medium-term to offset the deflationary effects of an appreciating currency during periods of current account reversal. Previous experience suggests that most of the needed stimulus can be provided by monetary policy, with only a supplementary role to be played by fiscal policy. Moreover, Asian economies with large current account surpluses tend to have sufficient fiscal space.

Fiscal Vulnerability and Sustainability in Oil-Producing Sub-Saharan African Countries

Over many years rises and fall of world oil prices have been repeatedly reflected in the boom-bust cycles in oil-exporting countries the world over. The recent spectacular rise and equally spectacular fall in prices provides an opportunity to inquire whether anything is different this time. In this paper we limit the analysis to the experience, outlook, and longterm fiscal policy considerations for eight of the world's oil-producing countries in sub- Saharan Africa. Because we are interested in gauging their fiscal vulnerability and sustainability from the angle of managing exhaustible oil wealth, we focus on the non-oil primary balance as the relevant indicator of how initial conditions and resource endowments can influence long-term considerations in several different models of fiscal rules.

Fiscal Vulnerability and Sustainability in Oil-Producing Sub-Saharan African Countries

Over many years rises and fall of world oil prices have been repeatedly reflected in the boom-bust cycles in oil-exporting countries the world over. The recent spectacular rise and equally spectacular fall in prices provides an opportunity to inquire whether anything is different this time. In this paper we limit the analysis to the experience, outlook, and longterm fiscal policy considerations for eight of the world's oil-producing countries in sub- Saharan Africa. Because we are interested in gauging their fiscal vulnerability and sustainability from the angle of managing exhaustible oil wealth, we focus on the non-oil primary balance as the relevant indicator of how initial conditions and resource endowments can influence long-term considerations in several different models of fiscal rules.

Alternative Fiscal Rules for Norway

This paper considers long-term fiscal policy options in Norway, the world's fifth largest oil exporter, in light of the substantial expected increase in pension outlays. It compares the current fiscal rule, which targets a (central government structural) non-oil deficit equal to 4 percent of Government Pension Fund assets, with three alternatives that save a larger share of oil revenue and accumulate more assets to pay for aging costs. It also analyzes the macroeconomic consequences of accumulating more assets, finding that the additional income generated from more assets allows lower tax rates, with positive effects on long-term output.

The Mechanisms of Forming of Russia’s Non-Oil-and-Gas Budget Balance

The article contains proposals to enhance the sustainability of long-term fiscal policy in Russia. The new methodology implies separation of those budget revenues that come from oil and gas industries and imposition of specific constraints on their use (oil-and-gas transfer). Definition of non-oil-and-gas budget balance is also presented. Long-term effects of such a new methodology introduction on federal budget parameters are described as well.

Trinidad and Tobago: The Energy Boom and Proposals for a Sustainable Fiscal Policy

Trinidad and Tobago is experiencing an energy boom stronger than the ones in 1970s and 1980s. The main fiscal policy challenge is to ensure that the increased revenues from the ultimately exhaustible resources are used in a way that protects the competitiveness of the nonenergy sector, builds assets to ensure intergenerational equity, and provides a cushion for stabilization. This paper derives estimates of a sustainable level of primary fiscal balance using Friedman's permanent income hypothesis. These estimates can be used as a guide for the formulation of medium- and long-term fiscal policy frameworks.

An Approach to Long-Term Fiscal Policy Analysis

This paper proposes an approach to setting fiscal policy that factors in the longer-term budgetary pressures that countries face owing, in particular, to population aging and rising health care costs. The approach attempts to overcome the difficulties in evaluating economic trade-offs and social welfare over extended periods. Long-term fiscal projections from the Intergenerational Report published as part of the Australian budget in May 2002 are used in a simple model of the Australian economy to illustrate some of the longer-term trade-offs that need to be considered in framing budgets over the medium term. These illustrative simulations, in particular, point out the importance of smoothing fiscal adjustment over time and, hence, the need for careful planning. Smoothing fiscal adjustment, however, raises a new set of questions regarding burden sharing across generations and what costs should be shared.