Public Indebtedness Research Articles

PUBLIC DEBT AND STABILITY IN ECONOMIC GROWTH: EVIDENCE FOR LATIN AMERICA

We study the effect of public indebtedness on economic growth in Latin American economies. Our main findings indicate that a Public Debt-GDP ratio of 75% leads to a deceleration in growth. On the other hand, a ratio of 35% increases the growth volatility. By using a Panel VAR we also found that external shocks, such as the foreign capital flows and the terms of trade, influence in the public debt effect on the economic growth. Clearly, the higher the level of public debt, the more vulnerable the economy can be in the short term; however, in the long term the growth is relevant for fiscal sustainability.

The Instability of Economic System and the Errors in Economics

The instability of an economic system is an almost normal condition, because it’s widespread. But it is a distortion if compared to the path of a stable economy. A stable economy follows a straight growth, with a steadily rising slope. In the world of instability, however, the economy follows a sinuous path, because the recession and the monetary signals come into play. Inflation and deflation are only the messengers of the unstable state and also signals to change course. They are ectoplasms created by the world of instability, to stimulate the return to the stable condition. A full frontal against the messengers makes no sense. Instead we need to hold the message and eliminate from the management of the economy those errors which derail from the compatible path and in parallel from the environment around us. The derailment is not definitive, because the events of the unstable sub-world show that the forces acting therein (the recession and the speculative excess) and the monetary messengers have the function of correcting the errors. The cycle of the conjuncture and, in extreme ratio, the speculative excesses are the correction tools, to bring the economic system back to the stable condition. Basically, the recession is a sequential intervention curbing the economy growth, to rebalance the systems’ potential according to the distinct but coherent course followed by our planet. The inflation is the messenger that measures the intensity of the gap between the two levels of development: the humanity and our natural environment. The deflation is instead the measure of the excesses suffered by the economy for the improvident idea to push the economy development beyond the limits imposed by compatibility. The deflation is the measure of excesses in terms of private and public indebtedness, and cheap credit. It is accompanied by a weak growth, which also requires new debt and money availability. The process, if not interrupted, starts the phase of misleading and doped speculation, which will end with a serious economic depression and new social troubles. We should not fight these instability monsters. We need to prevent them, instead. Our world seems to be running towards a new speculative fire. Trying to force the exhausted systems’ course is to light up the smoldering fire. The economy needs a period of calm to heal and reabsorb excesses. Monetary policy must raise up its guard, while fiscal policy must renounce the belief that we have the tools to tame the conjuncture cycle and to submit it to the wishes of our unscrupulousness.

The inversion of the ‘really big trade-off’: homeownership and pensions in long-run perspective

The hypothesis of a trade-off between homeownership and welfare state provision, first proposed by Jim Kemeny around 1980, is a foundational claim in the political economy of housing. However, the evidence for this hypothesis is unclear at both macro and micro levels. This paper examines the link between welfare and homeownership at the macro level using new long-run data and a multilevel modelling approach. It shows that the negative cross-sectional correlation between homeownership and public welfare provision observed in the earliest available data disappears and becomes neutral by the 1980s and possibly positive subsequently. Within-country trajectories vary, but are significantly positive in more countries than significantly negative, suggesting that in some contexts welfare and homeownership are complements rather than competitors. The paper posits a dual ratchet effect mechanism in both pension benefits and homeownership capable of producing this inversion, and further suggests that rising public indebtedness and the debt-stabilising effects of welfare states may account for the emergence of complementarity in the pension‒homeownership relationship. The latter supports the hypothesis that some countries have avoided the trade-off by ‘buying time’ on credit markets.

Government size, public debt and inclusive growth in Africa

A fixed effect regression model is used to examine the relationship between government size, public debt and inclusive growth for a panel of 54 African countries over the period 2000 to 2016. The findings from the study suggest that, the size of government has a positive effect on inclusive growth, and the extent of public indebtedness has a negative effect on inclusive growth, as well. It is further observed that improvements in inclusive growth work to promote levels of inequality-reducing growth. These findings indicate the need for policymakers in Africa to take the necessary steps to make growth more inclusive by ensuring optimal fund allocations, and optimal debt levels of public debt for each government is not breached.

Adequação do endividamento público do estado do Ceará à Lei de Responsabilidade Fiscal

Este estudo teve por objetivo verificar a adequação do endividamento público do estado do Ceará à Lei de Responsabilidade Fiscal (LRF). Para tal, realizou-se pesquisa descritiva, por meio de uma análise documental e abordagem quantitativa dos dados. O período em estudo se consistiu do intervalo de 2000 a 2017. Verifica-se os indicadores previstos na LRF, como a Dívida Consolidada Líquida (DCL), a Receita Corrente Líquida (RCL) e o indicador (DCL/RCL), representando o nível de endividamento. Os dados utilizados estavam disponíveis nos sítios da Secretaria do Tesouro Nacional e Tesouro Transparente. Os resultados indicaram que foram cumpridos os limites de endividamento em todos os anos do período, de modo que o maior nível de endividamento registrado foi de 118% e, ainda assim, o estado ficou com percentual inferior ao estabelecido pela Resolução nº 40/2001, de 20 de dezembro de 2001. Concluiu-se que o endividamento público do Estado do Ceará encontra-se em adequação à LRF no intervalo apreciado, encontrando-se abaixo dos limites fixados.

Estimation of Government Spending Multiplier in EU Economies

Abstract The aim of this paper is to estimate government consumption multiplier and to examine the effect of various characteristics of countries on the size of fiscal multiplier. We apply a panel VAR model following Ilzetzki et al. (2013) for a sample of 28 EU countries covering the period from 1995 to 2017. Key findings are, first, the estimated average fiscal multiplier is larger than unity. Second, the size of fiscal multiplier is larger in the cases of lower public indebtedness, for more developed European countries and for more financially open economies, which is also in line with relevant empirical literature. Regarding the role of trade openness, the results are inconclusive. In addition to this, membership of countries in the European integrations positively affects the size of fiscal multiplier. Therefore, fiscal policymakers should use fiscal stimuli as the instrument of boosting short-term economic growth selectively and consider country-specific characteristics. This paper contributes to the ongoing discussion in two ways, it examines the effect of additional characteristics of countries on the size of fiscal multiplier and updates existing empirical literature.

Fiscal Implications of Government Wage Bill Spending

This paper discusses the short- and medium-term fiscal implications of government wage bill spending. Working with a sample of 137 advanced, emerging and low-income countries, we use a panel VAR approach to identify differences in the dynamic behavior of revenues, nonwage expenditures, and the overall fiscal balance in response to changes in the wage bill. We show that the interaction between wage bill changes and these three fiscal items is alike and varies overtime. Higher wage bill spending does not revert in the medium term, but the initial worsening of the fiscal balance associated with it, though it persists, eventually halves as revenues increase while non-wage spending remains broadly unchanged. We also show that countries differ in how these three fiscal variables behave following wage bill changes and seek to explain this variation by a set of country characteristics, including the level of development, access to natural resources and public indebtedness levels.

Endividamento público e desenvolvimento humano nos grandes municípios brasileiros

De acordo com a teoria da dívida, os entes subnacionais, estados e municípios, endividam-se para realizar investimentos que proporcionem alocar bens públicos aos seus jurisdicionados, contribuindo para o desenvolvimento humano. No entanto, problemas com a má gestão dos recursos públicos podem contribuir para que o endividamento público influencie negativamente o desenvolvimento humano. Nesse sentido, o presente artigo investigou a influência do endividamento público sobre o desenvolvimento humano dos grandes municípios brasileiros. Para tanto, foram coletadas informações referentes aos municípios brasileiros com mais de 500 mil habitantes ao longo de sete anos, de 2006 a 2012. Como técnica estatística, utilizou-se a regressão MQO com dados em painel. Os resultados revelaram que o endividamento e os gastos sociais públicos influenciam timidamente o desenvolvimento humano dos grandes municípios, ao passo que a variável com maior influência é o desenvolvimento humano já sedimentado localmente ao longo do tempo.

Endividamento público de Minas Gerais: histórico e recentes propostas de recuperação

Este artigo busca apresentar o processo de endividamento público do Estado de Minas Gerais e as recentes alternativas que vêm sendo propostas para contornar a atual crise financeira. Foi realizada uma pesquisa bibliográfica, documental, descritiva e quantitativa com coleta de dados governamentais públicos. No final de 2016, o governo declarou situação de calamidade financeira e, desde então, vem tendo dificuldades para pagar os salários dos servidores públicos. Em relação às alternativas para superação da crise financeira, verifica-se que nenhuma teve impactos significativos até o presente momento.

La deuda pública en Ecuador: ¿Se cumplió la regla fiscal?

El objetivo de este trabajo es analizar el cumplimiento de la normativa vigente con respecto al “techo” del endeudamiento público en el Ecuador. La pregunta de investigación es: ¿las autoridades económicas inobservaron lo establecido en el código de finanzas públicas para determinar el monto de la deuda pública, y su límite en el período de 2010 al 2017? La sostenibilidad del endeudamiento está interrelacionada con la política fiscal, y al manejo de la cuenta corriente, lo que exige una revisión de la gestión de las finanzas públicas estatales desde lo conceptual, hasta los alcances de su metodología. La importancia de esta investigación radica en precisar uno de los indicadores más relevantes para la evaluación de la sostenibilidad macroeconómica, y la capacidad de pago de un país. Para llevar a cabo esta investigación se realizó un análisis comparativo entre la ley de finanzas públicas del 2010, y el marco legal vigente anterior a esta última. Además, se revisó cada uno de los cuerpos legales vinculados a la estimación del monto de la deuda pública, así como las diferentes visiones y/o enfoques sobre esta cuantificación. Por lo tanto, se desarrolló un enfoque de investigación cualitativo, que implica una revisión documental. Se concluyó que las autoridades económicas respetaron el límite legal del endeudamiento público al situarse por debajo del umbral del 40\%, la legislación secundaria hizo cumplir lo que dispone el código de finanzas públicas y la Constitución de la República y, la cuantificación estuvo de acuerdo a lo que recomienda el manual del Fondo Monetario Internacional (FMI).

Public Indebtedness in Punjab State of India: A Critical Review

A neoteric phenomena which has put the Indian economy under unbearable pressure is ballooning borrowings because of unceasing expenditure by the governments. In India, rising debt to GDP ratio has accentuated the problem of outpacing revenue expenditure which led to the implementation of FRBM Act, 2003 and after that indebtedness among states has declined. So, this paper focuses on the analysis of public indebtedness of non special category states of India and to access the level of indebtedness, debt to GDP ratio is taken. The state that has emerged as one of the weakest in tackling with the situation of growing indebtedness is Punjab over the period of 2000–2017 along with West Bengal because of rise in revenue expenditure especially the non-development component, stagnant growth in state's own tax revenue and sliding non-tax revenues. States like Odisha, Chhattisgarh, Andhra Pradesh, Madhya Pradesh and Bihar have low Debt to GSDP ratio and are spending more on developmental activities whereas the Punjab state is spending very less amount on developmental activities and more interest payments which can lead to the further deteriorate the financial health of the state.

Determinants of Public Indebtedness in European Union Countries

Abstract The paper strives to determine the impact of fiscal variables on factors determining the dynamics of public debt in European Union countries. Based on the literature, the dynamics of public debt are determined by changes of three elements: the primary balance, interest-rate-growth-differential and the change of government assets. Therefore, it seems reasonable to estimate the dynamics of these three values to find the variables crucial for limiting the growth of public debt. Three groups of dynamic panel regressions were estimated based on the one-step Generalized Method of Moments. The data was collected for the 1995-2015 period for 27 EU countries. Dependent variables included: primary balance, interest-rate-growth-differential and change of government assets. Independent variables consisted of: interest payable to GDP ratio, unemployment rate, squared unemployment rate, FDI stock to GDP, net FDI inflow to GDP, general government expenditures to GDP, share of social security expenditures and openness of the economy measured by the ratio of export and import to GDP. On the basis of statistical data, three components of debt changes were distinguished, and estimations of the dynamic panel regressions were applied to find the impact of independent variables. According to the basic models, the primary balance is lower for: countries with higher unemployment, greater FDI stock and higher general government expenditures. The interest-rate-growth-differential is lower in the case of: high subsidies and for a more open economy. However, unemployment and FDI remain the most important determinants of this variable. The change of government’s assets ratio decreases as FDI net inflows or the share of expenditures to GDP increase as well as in the case of very high unemployment.

Financial Data Transparency, International Institutions, and Sovereign Borrowing Costs

Recent events in international finance illustrate the close connection between the viability of a country's major private financial institutions and the sustainability of its sovereign debt. We explore the precise nature of this connection and the ways in which it shapes investors’ expectations of sovereign creditworthiness. We consider how investors use the overall level of information available about the private financial sector—and the potential risks it poses to government finances—when making decisions about investing in sovereign debt. We expect that governments providing more information about the private financial sector will have lower, and less volatile, borrowing costs. In order to test this argument, we create a new Financial Data Transparency (FDT) Index measuring governments’ willingness to release credible financial system data. Using the FDT and a sample of high-income OECD countries, we find that such transparency reduces sovereign borrowing costs. The effects are conditional on the level of public indebtedness. Transparent countries with low debt enjoy lower and less volatile borrowing costs.

Revisiting the bi-directional causality between debt and growth: Evidence from linear and nonlinear tests

We revisit the bi-directional causality between public debt and the rate of GDP growth for 10 EMU countries alongside the US, UK and Japan, over sample periods spanning from 1970 up to 2014 whilst accounting for the nonlinear properties of both the individual time series, and their relation in both directions. Our results indicate that the causal relation between debt and growth, in either direction, is weak at best. For most of the countries in our sample, we find no robust evidence of a long-run causal effect using bi-variate Granger causality tests. Bi-directional causality is detected only for Austria, while for France, Luxembourg and Portugal, causality runs solely from debt to growth, but the estimated effects are very small. In Finland, Spain and Italy, Granger causality (from growth to debt in the former two and debt to growth in Italy) appears to be present in the short-run. Our findings cannot be taken as evidence that a high level of public indebtedness is not risky for the economy or as invalidating hypotheses postulating effects in either direction in the relation between debt and growth.

James M. Buchanan and the Corrupting Quality of Public Indebtedness

This paper explains that James Buchanan’s theory of public debt entailed more than the shifting of cost forward in time from the current generation of taxpayers to future generations of taxpayers. The possibility of such shifting is dubious, for public debt really entails a shifting of cost among a current set of taxpayers. Beyond this cost shifting, public debt engenders a corruption of the meaning of contract through elevating public law to a position of superiority to the institutional processes of private law. In contrast, genuine liberal governance requires public ordering to proceed concordantly with private ordering.

Rast javnog duga, velika recesija i fiskalna konsolidacija - primer iz Srbije

This paper analyses the dynamics of public debt growth in Serbia between the fourth quarter of 2004 (2004Q4) and the same quarter of 2017 (2017Q4). The empirical estimates capture the upward shift in public debt growth from the onset of the Great Recession. The results also show how policy makers have managed to curb the growth of public indebtedness in Serbia between 2014Q4-2017Q4. The government should, however, put greater fiscal efforts to reduce the overall share of public debt in gross domestic product in accordance with the fiscal rules of the Republic of Serbia and the Maastricht convergence criteria.

Designing a fiscal union for the euro area

Motivation: Fiscal integration constitutes an important adjustment mechanism to cope with asymmetric shocks within a monetary union which does not fulfil many criteria of an optimal currency area. As is currently the case in the euro area, national governments implement discretionary fiscal policy to try to cope with the adverse economic shocks themselves and to try to stabilise income which leads to high budget deficits and public indebtedness in many euro area countries. While conducting fiscal policy at supranational level and fiscal transfers within EMU would allow for sufficient cross-country risk sharing and contribute to macroeconomic stability of the whole euro area. Aim: The aim of the paper is to give economic rationale and explain the significance of fiscal union for the effective functioning of a common currency area, and especially its macroeconomic stability as well as to present various forms of fiscal integration and to assess the possibility of their introduction within the euro area taking into account the current degree of economic integration, principles of conducting macroeconomic policy and its outcomes, the actual situation in the field of public finances and political circumstances in EMU and its member countries. Results: The greatest potential for macroeconomic stability — both in terms of asymmetric shocks, as well as these affecting the entire euro area — ensures the establishment of a large federal Eurozone budget. However, in a situation of a lack of political will to move forward into a political union, the approach to ensure fiscal stabilisation should include: creating even a small euro area-wide budget and the common Ministry of Finance, introducing a European unemployment (re-)insurance scheme with further harmonization of labour markets, equipping the banking union with a fiscal backstop as well as making national fiscal policies more stabilising and avoiding to impose self-defeating fiscal adjustments on crisis countries.

Challenges in financing public sector low-carbon initiatives: lessons from private finance for a school district in British Columbia, Canada

ABSTRACTGovernments are major investors in climate change mitigation, but aversion to public indebtedness has led to reliance on private finance to deliver public assets. Compounding this challenge, financing through Energy Service Contracts is ruled out by accounting rules. With public and traditional private funding avenues closed, government departments have sought contracts that do not disclose the full cost of borrowing, such as the Public–Private Partnership (PPP) described in this case study. We unpack the utility contract filed with the provincial regulator to show that circumventing budgetary constraints cost the Delta School Board (DSB) 8.75% per annum on borrowed private funds while public finance would have cost 4%pa. All levels of the public sector are keen to play their role in climate mitigation. Climate policy is about not passing our burden of unbridled fossil fuel use and greenhouse gas emissions to future generations. If we do not exempt public sector capital investments for decarbonization from deficit regulations, we risk passing an unnecessary economic burden to future generations.Key policy insightsTransition to a low-carbon economy requires public sector investments that exceed budget deficit regulations and political aversion in many jurisdictions;Private–Public Partnerships are currently viewed as the solution to this self-imposed fiscal constraint;PPPs without clear performance targets or contractual templates will expose less experienced public sector investors to high costs and emissions above expectations.

Neoliberalism, Development, and the Costa Rican State

Costa Rica has been celebrated for its relatively high levels of economic development in a region marked by extreme poverty and income inequality. Recent scholarship has examined the competing and complementary interests of private capital and public institutions in pursuing an aggressive neoliberal growth strategy while preserving social programs created during the developmental period of the 1950s through the late 1970s. This article extends the inquiry by considering the position of the Costa Rican state in social and economic policy making and management. It considers Costa Rica from the perspective of developmental state theory, the construction of an “intermediary state” characterized by significant elements of autonomy but without the capacity to alter independently economic or social structures. The 2008–2011 recession, public indebtedness, and related demands of capital and labor have overwhelmed Costa Rican intermediate‐state capacity and undermined Costa Rica's covenant between economic growth and social protections.

Marx(ism) and Public Debt: Thoughts on the Political Economy of Public Debt

This essay aims at providing the basis for an approach to public debt consistent with Marx’s theory of capitalist economy. The starting point for this theory is the value theory, and it upholds that public debt is a specific type of fictitious capital and that the latter is the outcome of a dialectical development in the substantiation of different types of capital. It is argued that fictitious capital validates the current valuation in capitalism, allocating a crucial role to the so-called public debt. Along these lines, the essay links public debt to Marx’s theory of the capitalist State, outlines its historical and logical role in the reproduction of capital, details its own features as a type of fictitious capital, clarifies the way the modern tax system bolsters division amongst social classes, and debunks the rise in public indebtedness as the root of the current crisis of world capitalism, as well as conventional therapies based upon orthodox fiscal adjustments.