Search results

This article aims to examine empirically the relationship between budget periodicity and expenditure volatility in state governments. Using a large panel dataset for fifty states over the years 1960-2012, after controlling for institutional, economic, and political factors, we find general expenditure of biennial states has been significantly less volatile than that of annual states. The finding suggests that a choice between annual and biennial budget period can emerge as a feasible and effective countercyclical strategy to overcome fiscal difficulties in the short run and promote fiscal stability in the long run.

Even though fiscal autonomy plays a role as one of the prerequisite conditions for fiscal decentralization, there has been little research into why fiscal autonomy is important or how it works for subnational governments. This study aims to examine the effectiveness of fiscal autonomy by using a panel dataset of US state governments from 2001 to 2013.

According to the results of general method of moments, the author find that fiscal autonomy leads to reducing volatility in total expenditures.

It indicates that fiscal autonomy is necessary for state governments performing one of the three Musgravian role of government (e.g. stabilization). However, when we look at the more detailed relationship between fiscal autonomy and volatility by applying expenditures from major categories such as capital outlay, general expenditure and public welfare, this study finds no statistically significant results. Interestingly, balanced budget requirement and tax and expenditure limitation indicate different effects on expenditure volatility, even though they belong to the same institutional factors.

This paper is meaningful because it can support the importance of fiscal autonomy on fiscal performance.

This paper aims to explore the empirical determinants of exchange-rate volatility (ERV) in selected Asian economies, namely, Bangladesh, China, India, Indonesia, Malaysia and Pakistan. Specifically, it examines how the volatility of foreign reserves, government spending, industrial production, gold prices and terms of trade affect monthly ERV during the examined period.

The authors carry out the empirical analysis by using monthly data for the period January 1997–March 2019. First, the volatility of the underlying variables is measured based on the conditional variances obtained by estimating the univariate (generalized) autoregressive conditional heteroskedasticity [(G)ARCH] model for each variable during the study period. Next, the autoregressive conditional heteroscedasticity (ARCH)-Lagrange multiplier test is applied to ensure that there are no remaining ARCH effects in the residuals. Finally, the multivariate autoregressive-moving average-GARCH (1, 1) models are estimated to examine whether and how the volatility of the underlying variables affects ERV.

The results reveal that the current period volatility of exchange rates is significantly affected by ERV in the previous period in all selected countries. The results also indicate that the volatilities of the underlying macroeconomic variables are quite differently related to ERV in examined Asian countries. Foreign-reserve volatility (VFXRES) has negative and significant impacts on ERV in Bangladesh, China and Malaysia. Government-spending volatility is negatively related to ERV in India, whereas it is positively related to ERV in all other examined countries. The results also suggest that although terms-of-trade volatility reduces ERV in both Bangladesh and Pakistan, it amplifies ERV in the remaining examined countries. However, gold-price volatility (VGOLDP) significantly, positively contributes to ERV in Bangladesh, Indonesia and Malaysia. On the contrary, the higher volatility in industrial production (VIPI) results in lower ERV in Indonesia and Pakistan, whereas it increases ERV in China, India and Malaysia.

The findings have several important policy implications. First, the findings suggest that both Bangladesh and Malaysia should keep an adequate level of foreign reserves to stabilize their foreign exchange rates. Second, as government-spending volatility has a vital role in determining ERV, it is necessary to bring sustainability and continuity in government expenditures. Bangladesh and Pakistan can stabilize their foreign exchange rates by making exports more competitive, viable and accessible.

This paper significantly contributes to the existing literature by exploring how the behavior of unexpected variations in the factors determining exchange rates affects ERV in selected Asia countries. Most of the published studies have examined the determinants of exchange rates by considering the macroeconomic variables at their levels. Departing from the existing studies, this paper significantly relates the volatility (second moment) of exchange rate determinants to the behavior of ERV. Further, this paper provides firsthand empirical evidence on this issue for the selected Asian economies.

This paper aims to explore the effect of non-resource tax revenue instability on non-resource tax revenue in developed and developing countries.

The analysis has used an unbalanced panel data set of 146 countries over the period 1981–2016, as well as the two-step system generalized methods of moment approach.

The empirical analysis has suggested that non-resource tax revenue instability influences negatively non-resource tax revenue share of gross domestic product. The magnitude of this negative effect is higher in less developed countries than in relatively advanced countries. This negative effect materializes through public expenditure instability: non-resource tax revenue instability exerts a higher effect on non-resource tax revenue share as the degree of public expenditure instability increases. Finally, non-resource tax revenue instability exerts a higher negative effect on non-resource tax revenue share as economic growth volatility rises, inflation volatility increases and terms of trade instability increases.

The main policy implication of this analysis is that policies that help ensure the stability of non-resource tax revenue also contribute to improving countries’ non-resource tax revenue share. For example, governments’ measures that help cope with or prevent the severe adverse effects of shocks on economies (shocks that could translate into higher tax revenue instability) would ultimately help enhance countries’ tax revenue performance.

The severity of the current COVID-19 pandemic shock (which is a supply and demand shock) and the macroeconomic uncertainty that it has generated – inter alia, in terms of economic growth instability, terms of trade instability, inflation volatility and public expenditure instability – are likely to result in severe tax revenue losses. Governments in both developed and developing countries would surely learn from the management of this crisis so as to prepare for possible future economic, financial and health crises with a view to dampening their adverse macroeconomic effects, including here their negative tax revenue effects.

To the best of the author’s knowledge, this topic is being addressed in the empirical literature for the first time.

Empirical evidence shows that banking development has a significant impact on macro-level economic growth through the finance-growth nexus and also highlights the prominent effect of development on local economy and household welfare, particularly in developing countries with restricted access to financial systems. The authors investigated the role of local banking development in affecting household welfare in Thailand which is a modest degree of financial access compare to other countries. The authors focus on the development of the banking sector in four dimensions, including financial depth, financial stability, financial efficiency and financial inclusion, and its impact on household welfare using the generalized method of moments approach to address the endogeneity problem. The authors employ biennial household welfare data from the National Statistical Office survey from 2007 to 2019 which covers all provinces in Thailand. The findings suggest that each type of banking development significantly affects household income and consumption in Thailand, although in different ways. Financial depth decreases income and consumption expenditure, while financial inclusion increases income and consumption expenditure (level effect). However, there are insignificant impacts on volatility of household income and consumption (volatility effect). Our findings prove that the implementation of policies to promote banking development either promote or decrease household welfare. This study can provide insight on policy impact and assist policymakers in considering the adoption of banking development policies to promote growth of the local economy, while at the same time aiming to reduce welfare inequality.

The purpose of this paper is to examine how specific macroeconomic indicators and conditions impact short- and long-run loan delinquency rates among US commercial banks under various economic episodes.

The study employs an autoregressive distributed lag framework (ARDL) and error correction model in its examination of how loan delinquency rates are impacted by specific macroeconomic variables and conditions.

This study finds that in both the short and long run, a percentage growth in macroeconomic indicators, such as industrial productivity and private domestic investments, reduces loan delinquency rates among commercial banks, given all things being equal. Additionally, this study also finds that adverse macroeconomic conditions, such as inflation, economic policy uncertainty and volatility, associated with specific macroeconomic variables, such as investment growth, etc., tend to worsen loan delinquency rates. Empirical results further suggest that among the various macroeconomic conditions examined, inflationary pressures tend to have the most significant heightening impact on loan delinquency rates among commercial banks.

The uniqueness of this study, compared to similar studies found in the literature, has to do with its verification of potential association between loan delinquency rates and specific hitherto unexamined macroeconomic conditions. Compared to similar studies on loan delinquency, this study collectively examines how conditions of uncertainty, volatility and expectations of macroeconomic conditions shape loan delinquency rates among commercial banks.

This paper aims to examine how the volatility of foreign direct investment (FDI) inflows affects the volatility of corporate income tax revenue.

The study has used an unbalanced panel data set of 129 countries over the period 1981–2016 and the two-step system generalized methods of moment approach to perform the empirical analysis.

The main findings are that FDI volatility enhances the volatility of corporate income tax revenue in less advanced economies, but reduces it in relatively advanced countries. The positive corporate income tax revenue volatility effect of FDI inflows is far higher in non-tax haven countries than in tax haven countries. Additionally, FDI volatility exerts a higher positive effect on corporate income tax revenue volatility as countries experience greater dependence on natural resources. Finally, the positive effect of FDI volatility on corporate income tax revenue volatility is further amplified by higher FDI volatility.

One important limitation of the present analysis is the use of aggregate FDI inflows because of the lack of data over a long period on greenfield FDI inflows and cross-border mergers and acquisitions FDI inflows. Therefore, an avenue for future research could be to explore separately the effect of the volatility greenfield FDI inflows and the volatility of cross-border mergers and acquisitions FDI inflows on the volatility of corporate income tax revenue, when long-time series data (covering many countries) would be available.

These outcomes particularly shed light on the role of FDI volatility on the volatility of corporate income tax revenue, particularly in countries that are highly dependent on natural resources. Foreign capital flows, notably FDI flows, play an essential role for countries’ economic development through, inter alia, technology transfer, jobs creation and economic growth. Policymakers should aim to attract FDI, while also reducing their volatility, by designing and implementing policies and measures (such as those in favor of business environment improvement, property rights enforcement and political stability) that would assure foreign investors of the continuous high returns of their investments.

To the best of the author’s knowledge, this is the first time this topic is being addressed empirically in the literature.

This study examines the relationship between working capital management and business performance.

The relationship between the working capital management and business performance is examined using panel data analysis for a sample of EU-28 listed firms for the period from 2003 to 2012. To examine this relationship, an ordinary least squares (OLS) regression model is used to analyze the data obtained from the sample. The dependent variable consists of three measurements, namely return on asset (ROA), return on equity (ROE) and earnings before interest and taxes margin (EBITM), which are used as proxies for accounting-based measures of performance.

The authors examined the aforementioned relationship during the 2008 financial crisis. The OLS regression analysis suggests that there is a negative relationship between gross working capital and business performance for code law countries. The results also show that liquidity measures estimated by current ratio have a statistically significant impact on business performance indicated by ROA for all EU countries. The 2008 financial crisis had a significantly negative impact on ROA. Additionally, the findings regarding financial inclusion show a negative relationship between gross working capital and business performance among EU and other performer countries.

Overall, the empirical findings are consistent with Afrifa's (2016), who suggests that cash flow should increase investment in working capital to improve performance indicated by EBITM for old EU members.

While many empirical studies investigate the relationship between working capital and firm profitability, most do not consider the impact of the 2008 financial crisis apart from Tsurate (2019). The authors examine whether legal origins are important determinants of working capital management policies and business performance. Thus, empirically, the code law countries have a negative relationship between gross working capital, business performance and EBITM.

This study examines how specific micro-level macroeconomic indicators influence corporate performance volatility among US corporate bodies in the short run.

The study employs error correction autoregressive distributed lagged (ARDL) model (ECM) to examine how micro-level variables influence volatility associated with corporate performance in the short run.

This paper finds that disaggregated or micro-level variables examined, tend to exhibit features that are not readily apparent from the aggregate variable from which such variables are derived. For instance, reported empirical estimate suggests that, growth in expenditures on services and nondurable goods tend to lower volatility associated with corporate performance, whereas government expenditures and expenditures on durable goods rather worsens volatility associated with corporate performance, all things being equal. Additionally, presented empirical estimates further provide evidence suggesting that macroeconomic uncertainty and inflation uncertainty significantly moderate or influence the extent to which disaggregated variables impact corporate performance volatility.

Compared to related studies in the reviewed literature, this study rather examines volatility associated with corporate performance instead of the corporate performance indicator itself. Additionally, this paper also examines how disaggregated variable instead of aggregate variables impact such volatility. Finally, the moderating role of key macroeconomic conditions in such a relationship is also examined.

Consumption volatility is a key source of economic growth volatility; thus, it is an important factor in designing macroeconomic policy. The purpose of this paper is to investigate the factors that determine household consumption volatility, using urban household survey (UHS) data over the period 2002–2009 in 18 provinces in China.

Both a traditional variance decomposition method and an advanced variance decomposition method are used.

The traditional variance decomposition method suggests that heterogeneity of consumption goods is the key to analyze consumption volatility in China. Consumption of transportation makes the highest aggregate contribution and per-unit volatility in consumption volatility, whereas consumption of food makes the second highest aggregate contribution and the lowest per-unit volatility. Further investigation with the advanced variance decomposition method, which allows the authors to capture intertemporal dynamics and cross-household differences simultaneously, finds that the main factor determining the consumption volatility in China is intertemporal dynamics, rather than cross-household differences.

Future research could fruitfully explore four issues. First, consumption upgrading has increased the volatility of China’s household consumption. How much will this affect economic growth in China under its “new normal” conditions, and how should the Chinese government respond? Second, differences between UHS data and aggregate data in the calculations of consumption risk sharing need to be investigated. Third, it is important to investigate the channels through which the Chinese government can enhance its ability to spread consumption risks and thus reduce consumer consumption volatility. Finally, further study could extend the current 18 provinces to a nation-wide sample and update the data beyond 2009 to estimate the impact of the global financial crisis.

The results suggest that when policy makers design macroeconomic policies to smooth consumption volatility, they should consider heterogeneity in household consumption goods, regional disparity and intertemporal dynamics simultaneously. Well-managed volatility of Chinese household consumption can contribute to a stable economic growth in China and the world.

Well-managed volatility of Chinese household consumption can contribute to a stable economic growth in China and the world.

This paper fills this gap by using China’s UHS data to assess consumption volatility from the perspectives of heterogeneity in household consumption goods, cross-household differences and intertemporal dynamics. We make three contributions to the literature. The first contribution of this paper consists of demonstrating the contributions of heterogeneity in household consumption goods to consumption volatility. The second contribution consists of using the advanced variance decomposition method proposed by Crucini and Telmer (2012). This decomposition methodology allows the authors to examine whether household consumption volatility is due to cross-household differences or intertemporal dynamics. The third contribution is that this paper takes Chinese residents’ consumption fluctuations as the starting point to analyze the impact of consumption fluctuations on the future trend of China’s economy.