Negative Macroeconomic Effects Research Articles

Endogenous uncertainty and the macroeconomic impact of shocks to inflation expectations

A shock that increases short-term inflation expectations has negative macroeconomic effects, increasing inflation and decreasing output. The third-order solution of a rich DSGE model with firm dynamics shows that the endogenous increase in uncertainty is key for both amplifying the transmission mechanism and providing robust sign restrictions to identify the inflation expectations shock in an empirical VAR. The model, estimated using limited information impulse response matching techniques, shows the importance of endogenous uncertainty and firm dynamics for the transmission mechanism of an inflation expectations shock. Furthermore, shocks that increase inflation expectations have stronger effects than shocks that reduce inflation expectations.

Анализ состояния и перспектив развития рынка труда в Российской Федерации. Подготовка кадров для новой экономической реальности

Russia's economy has experienced several major crises over the past few decades. However, the unique response of the Russian labor market to economic shocks was not an increase in unemployment, but primarily changes in wages, which offset the negative macroeconomic effects. In the current situation, with the ongoing Ukrainian crisis, as well as under the influence of anti-Russian sanctions of Western countries, the Russian labor market is inevitably preparing to undergo significant changes. In addition, the labor market in Russia today is significantly influenced by the global digital transition, which causes an urgent need for the transformation of training models for workers. Thus, this article offers a broad overview of the nature and peculiarities of the Russian labor market through its history, and identifies areas for its change and adaptation to the current external challenges.

Assessing Regional Inequality based on Revenues of the Federal Budget using the Pareto Principle

The use of fiscal instruments for regulating territorial development has both positive and negative macroeconomic effects related to the withdrawal of revenue from more economically developed regions. Therefore, using the Pareto principle, this paper assesses the negative effects of budgetary reallocation. This study considers inter-budgetary reallocation as an annually recurring four-stage process of regional budgets reproduction. The article analyses the firs t stag e o f th e process , namely , the creation of resource allocation base. A hypothesis has been tested to examine whether the centralisation of tax revenues in the federal budget and, consequently, an increase in inter-budgetary reallocation does not reduce, but exacerbates inequality in regions due to their revenue depletion and limited self-development. The study assessed the contribution of federal districts and individual constituent entities of the Russian Federation to the federal budget, withdrawal of regional revenues, and the concentration of territorial revenues to the federal budget. Based on the ranking of regional contributions to federal revenues, I built a Pareto diagram, checking the 80/20 rule for grouped and non-grouped data. Calculations and comparison of the data for 2017 and 2010 confirm numerous negative effects. For example, there is an increase in the withdrawal of regional revenues and a significant concentration of federal revenues for a limited number of regions. Additionally, negative effects include the existence of a direct relationship between regional revenues and the rate of their withdrawal, as well as the predominance of the equalising component over the stimulating one in regional socio-economic development. These effects lead to revenue depletion in the territories and increased centralisation of budgetary resources, contradicting the principles of fiscal federalism. Authorities can use the research results, conclusions and suggestions for managerial decision-making to improve intergovernmental relations in the Russian Federation.

External Financial Liberalization and Macroeconomic Performance in Emerging Countries: An Empirical Evaluation of the Brazilian Case

ABSTRACTThis article evaluates the effects of external financial liberalization on Brazilian macroeconomic performance from 1995 to 2016. Its main contributions are to assess the influence of the global financial cycle on the level of external financial liberalization and to analyse the short‐ and long‐run macroeconomic effects of such liberalization on the performance of a peripheral economy in the global currency hierarchy. Methodologically, the article employs the Markov‐Switching Vector Autoregressive and Vector Error Correction models. The results show that the global financial cycle directly affects cross‐border financial flows and frames the impact of external financial liberalization on the macroeconomic performance. The article concludes that external financial liberalization has negative macroeconomic effects in the short run and generates a trade‐off between stability and growth in the long run.

THE MILITARY EXPENDITURE IN THE CONDITIONS OF GROWING GEOPOLITICAL RISKS AND CHANGES IN THE NATURE OF INTERNATIONAL CONFLICTS

Introduction. In the context of growing geopolitical tensions, the expansion of conflict zones and changes in the nature of modern international conflicts, the question of determining the amount of military spending is relevant, both from the standpoint of sufficiency, which will protect its borders and security at any time, and from the standpoint of reasonableness to prevent negative macroeconomic effects, first of all, deterioration of social conditions for the population. Therefore, the basis for solving this problem is, first of all, rethinking the essence of international conflicts and the peculiarities of their manifestation in modern conditions, the study of components of military spending, as well as their role in ensuring defense capabilities in new realities. The purpose of the article is to clarify the essence of military spending in the context of changing the nature of modern international conflicts to develop scientific approaches to determining their scope and structure. Methods. Methods of analysis and synthesis, comparison and generalization in the study of the essence of military expenditures and clarification of their components are used in the article. Results. The analysis of modern conflicts and wars in the world allowed to reveal the characteristic features of their manifestation, to characterize modern conflicts as "hybrid" and to define them as asymmetric wars, involving not only classical political and military methods and tools for their resolution, but also non-traditional ones. such as information, economics, sociology, etc. Ambiguity in the interpretation of the nature and structure of military spending by domestic and foreign researchers, international organizations (UN, NATO, IMF) and world-renowned research institutes dealing with war and peace has been clarified. It is proposed to treat military expenditures as an important component of defense and security expenditures associated with the development of the military organization of the state to fulfill the tasks of military doctrine. In order to ensure the transparency of military spending in open economies, it is proposed to allocate in the cost structure the costs of international activities aimed at maintaining peace on the planet. Perspectives. Further research on military spending should be conducted from the standpoint of elucidating their impact on the main macroeconomic indicators of the state.

Costs or benefits? Assessing the economy-wide effects of the electricity sector's low carbon transition – The role of capital costs, divergent risk perceptions and premiums

To mitigate climate change, societies strive to transform the energy sector towards greenhouse gas emission neutrality, a move which assessment studies often indicate incurs large macroeconomic costs. In this context the weighted average costs of capital (WACC) are especially important, as renewables are highly capital intensive. In particular, investors' perceptions and expectations of risks are fundamental determinants of WACC and thus strongly influence the macroeconomic outcome of transition analyses. For the case of Europe's electricity sector transition, we analyze this sensitivity by choosing different WACC settings, driven also by different policy settings redirecting expectations. First, we find that when differentiating WACC across regions and technologies more accurately than usually done in the literature, immediate and substantial macroeconomic benefits from the transition emerge. We thereby reveal a systematic overestimation of low-carbon transition costs in the literature. Second, we find that when pricing-in increasing trust in renewables, these benefits get significantly larger, outweighing possible negative macroeconomic effects from the risk of stranding of fossil-based assets. We also demonstrate that in developed regions such as Europe, de-risking renewables is an effective lever for reaching climate targets, which indicates the relevance of green macroprudential regulation.

The introduction of a ‘monthly living wage’ in Slovenia

This article provides a chronological account of the Slovenian trade unions’ successful campaign to turn the statutory national monthly minimum wage into a living wage. The campaign led to a 23 per cent increase in the minimum wage and a change of its adjustment mechanism in 2010 and successive changes to its definition. The analysis starts with a historical overview of minimum wage developments in Slovenia and an account of the events prompting trade unions to launch their campaign. Reviewing the impact of the 23 per cent minimum wage increase, the Slovenian experience shows that turning the monthly minimum wage into a living wage does not necessarily lead to negative macroeconomic effects in terms of reduced growth or increased unemployment. The example of Slovenia furthermore illustrates that, even though the campaign was not explicitly couched in terms of a living wage campaign, the trade unions managed to adapt key elements of the living wage concept to the country-specific institutional context.

INSTRUMENTS FOR MINIMIZING THE TAX BURDEN IN UKRAINE: COMPARATIVE ANALYSIS AND APPLICATION EFFECTS

Introduction. The level of the tax burden in Ukraine remains one of the highest in the world. It is a threat to the stable functioning of economic entities and the development of the business sector. The current state of development of tax legislation in Ukraine does not stimulate economic entities to legalize their activities and to legalization their financial flows. The complexity and internal contradiction of legislative acts, the peculiarities of the calculation and payment of taxes affect the decision-making of economic entities on tax evasion. In the context of the growing need to increase tax revenues to budgets of all levels without the use of additional tax pressure, identification of all possible schemes for minimizing tax payments and eliminating the conditions for their use are the most important tasks of the tax system. Purpose. The article aims to investigate modern instruments for minimizing tax burden by economic entities and determining the effects of their application. Results. According to the results of the study, the main causes of tax evasion, methods and mechanisms of using the instruments of minimizing the tax burden have been determined. The effects of their application have been investigated. The analysis of the most common schemes for avoiding taxation has been carried out. It is established that most of them are based on the imperfection of the existing simplified taxation system. The results of the study have showed that the use of instruments for minimizing tax burden leads to a reduction in fiscal flows, a deterioration of the economic environment, the emergence of negative macroeconomic effects. Among the negative macroeconomic effects, we can distinguish the following ones: the deformation of the balance of payments, withdrawal of capital from the country, the formation of additional pressure on the exchange rate, destructive impact on the formation of multi-sectoral priorities of customs and tax policy of the country, deepening of corruption schemes. The necessity of development and application of effective tools for counteraction to tax evasion for timely identification of the unlawful actions of business entities has been proven. It should be done with the aim to increase the level of financial security and to strengthen the competitiveness of Ukraine's economy.

The Macroeconomic Impact of Fertility Changes in an Aging Population

We assess the impact of continued low fertility in China, versus a rebound in fertility due to the relaxation of the one child policy, on demographic and macroeconomic outcomes in a dynamic general equilibrium framework. We use a rich model of human capital investment, public health insurance, pensions, private savings, and intra-family transfers to support the consumption of young and elderly dependents. We find that in short run (sixty years in our benchmark experiment), income per capita is lower with a fertility rebound due primarily to a higher youth dependency rate. In the long run, higher fertility leads to a reduction in the old-age dependency ratio and lowers the tax rate required to pay for old-age pensions and health care. However income per capita remains lower even in the long run because of a reduction in female labor supply, savings, and schooling. Higher fertility in China is therefore unlikely to offset the negative macroeconomic effects of population aging.

Respect, responsibility, and development

We develop a theory that explains how two core values – Respect for others and Responsibility – affect productivity, the accumulation of capital, and output per worker. Using data from the World Values Survey, we empirically test the model using a panel dataset that includes 82 countries over six distinct years. We find that these two core values are important to production and that their impact is substantial. We also show that Respect and Responsibility reduce the influence of trust and mitigate the negative macroeconomic effects associated with fractionalized societies. Our results are robust to various treatments for endogeneity and under alternative samples.

The possible perverse effects of declining wages

Central bankers fear deflation but this is incomprehensible within the standard AS/AD framework based on a real wealth effect. This framework is amended by introducing debt effects that reduce aggregate demand when prices fall, as emphasised long ago by Keynes, Kalecki and Fisher, thus showing that wage deflation may have perverse effects. An alternative model is then presented, based on markup pricing and non-decreasing returns, and incorporating the impact of income distribution on aggregate demand. The wealth and debt effects, as well as those of income redistribution, are then considered when wage and price deflation occurs. The purpose of the paper is to provide a pedagogical tool showing why deflation is being feared by economists operating in the real world and demonstrating why the downward flexibility of wages may have negative macroeconomic effects.

Respect, Responsibility, and Development

We examine the impact of the values respect for others and responsibility on productivity and the accumulation of physical and human capital for a sample of 58 countries. We find that these two core values are important and that their impact is substantial. Respect for others works primarily through productivity whereas responsibility is important to investment in physical and human capital. We also show that respect and responsibility are embedded in institutions and may overcome the negative macroeconomic effects associated with fractionalized societies.

Enforcing the 1988 Basel Capital Requirements: Did it Curtail Bank Credit in Emerging Economies?

We examine whether the enforcement of bank capital asset requirements (CARs) curtailed the supply of credit in emerging economies. Preliminarily, we identify 16 emerging economies that – according to official and impartial reports – enforced the 1988 Basel standard during the 1990s. Then we perform our twofold econometric analysis. In the former part, we use macro data to test whether, controlling for economic fundamental variables, the enforcement brought about a slowdown in aggregate credit in these countries vis‐a‐vis other emerging economies. We find some support for our hypothesis. In the latter part, we employ individual bank data to better identify the ‘capital crunch’ effect of the enforcement. Here, we find that CAR enforcement – according to the 1988 Basel standard – significantly curtailed credit supply, particularly at less well‐capitalized banks. The two empirical parts together suggest that the CAR enforcement did curtail aggregate credit in the examined emerging countries and that this result is rooted in the attempt by under‐capitalized banks to reduce their loans. We argue that among developing countries – where banks are often the only source of financial intermediation – the positive effect of higher capital requirements, represented by the reduction of poor quality lending, may be offset by their negative impact on bank liquidity and on the level of economic activity. Hence, our results suggest that particular care is required to avoid potential negative macroeconomic effects when phasing in new and higher capital requirements in emerging economies.(J.E.L.: G18, G21, G28)