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1 – 10 of over 2000Ameni Mtibaa, Amine Lahiani and Foued badr Gabsi
Departing from the expansionary austerity literature, this study aims at examining how fiscal consolidation affects the economic growth in Tunisia using annual data over the…
Abstract
Purpose
Departing from the expansionary austerity literature, this study aims at examining how fiscal consolidation affects the economic growth in Tunisia using annual data over the period 1970–2018.
Design/methodology/approach
To revisit the fiscal consolidation-economic growth nexus, the ambiguous empirical findings in previous literature make useful the adoption of alternative econometric techniques. The authors use an extended nonlinear autoregressive distributed lag (ARDL) cointegration approach developed by Shin et al. (2014) and the Diks and Panchenko's (2006) nonlinear Granger causality test. Furthermore, a traditional approach based on changes in cyclically-adjusted primary balance was applied to define the fiscal consolidation episodes in Tunisia.
Findings
The empirical evidence reveal that fiscal adjustment in Tunisia may hurt the economy, both in the short- and long-run, through its contractionary effect on economic growth. Another important finding concerns the unidirectional nonlinear Granger causality running from fiscal consolidation to economic growth.
Practical implications
Fiscal adjustment in Tunisia is found to play a prominent role in reducing public debt; but at the same time, it may be costly and not beneficial to the economy. This view corroborates with the fact that fiscal consolidation is more likely to end successfully only under specific conditions. This calls for a deeper reflection upon new insights regarding the design of fiscal adjustment in Tunisia. To reach this end, it is suggested to combine the defensive consolidation strategy with offensive components such as investment, infrastructure, education and health.
Originality/value
The existing economic analysis on fiscal policy-growth nexus in Tunisia has often identified fiscal consolidation through the use of the actual fiscal balance. With the goal of more accurate estimation, this study bridges the gap by using the cyclically-adjusted primary balance (CAPB) as a much suitable indicator to investigate the non-Keynesian effect of fiscal consolidation in Tunisia. This indicator eliminates the influence of cyclical fluctuations and many other fixed expenditures such as the interest paid on the public debt.
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The purpose of this paper is to empirically examine the relationship between fiscal consolidations and changes in income distribution.
Abstract
Purpose
The purpose of this paper is to empirically examine the relationship between fiscal consolidations and changes in income distribution.
Design/methodology/approach
Looking at a sample of 27 emerging market economies between 1980 and 2014, the authors resort to both static panel techniques as well as dynamic impulse response function analysis using local projection methods to uncover the direct impact of adjustments on inequality.
Findings
The authors find that fiscal consolidations tend to lead to an increase in income inequality and reduce the redistributive role of fiscal policy. Spending-based consolidations are more detrimental to income distribution than tax based ones and fiscal retrenchment during bad times raises inequality. In times of fiscal expansion inequality seems to rise in the medium term and this effect is larger if the economy is booming.
Research limitations/implications
The distributional effects of consolidation, i.e. whether consolidation can confer benefits, must be balanced against the potential longer term benefits. It should be recognized that there is scope for improving the targeting and efficiency of public programs and that fiscal adjustments would not unavoidably run into such an efficiency vs equity trade-off.
Originality/value
The paper, applying a consistent methodology, documents the set of fiscal episodes emerging market economies experienced over time. The authors empirically examine both the static and dynamic links between fiscal consolidation and inequality. Since composition matters, the authors explore how spending and tax-based fiscal consolidations affect income distribution. The authors conduct several robustness checks including the use of alternative income distribution proxies and state-contingent estimations on the phase of the business cycle.
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Francesco Forte and Cosimo Magazzino
The aim of the paper is to evaluate fiscal adjustments that have occurred in the Economic and Monetary Union (EMU) countries in the last 35 years, and their consequences on the…
Abstract
Purpose
The aim of the paper is to evaluate fiscal adjustments that have occurred in the Economic and Monetary Union (EMU) countries in the last 35 years, and their consequences on the economic growth process by using the mean group (MG) estimators.
Design/methodology/approach
Our emphasis is on the effects of different composition of fiscal stimuli and consolidations. We compare the effects on the economic growth rate of different compositions of major fiscal changes. We use a cyclically adjusted value of the fiscal variables to leave aside variations of the fiscal variables induced by business cycle fluctuations.
Findings
Our empirical research of the effects of large changes in fiscal policy, both in case of a fiscal consolidation and of fiscal stimulus in the 18 EMU countries from 1980 to 2015, shows that adjustments by cutting current expenditures, rather than by tax increases are more likely to boost economic growth. It also shows that cuts of investment expenditures may reduce GDP growth. During fiscal stimulus episodes, tax cuts and public investments are more likely to increase growth than current public expenditure.
Originality/value
This is the first study devoted to the EMU countries. It should be underlined that the results obtained as for EMU countries are not necessarily applicable to other countries, as the different government size as well as different market institutions may influence the results.
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Giuliana Passamani, Roberto Tamborini and Matteo Tomaselli
The purpose of this paper is to explain why some countries in the eurozone between 2010 and 2012 experienced a dramatic vicious circle between hard austerity plans and rising…
Abstract
Purpose
The purpose of this paper is to explain why some countries in the eurozone between 2010 and 2012 experienced a dramatic vicious circle between hard austerity plans and rising default risk premia. Were such plans too small, and hence non-credible, or too large, and hence non-sustainable? These questions have prompted theoretical and empirical investigations in the line of the so-called “self-fulfilling beliefs”, where beliefs of unsustainability of fiscal adjustments, and hence default on debt, feed higher risk premia which indeed make fiscal adjustments less sustainable.
Design/methodology/approach
Detecting the sustainability factor in the evolution of spreads is uneasy because it is largely non-observable and may be proxied by different variables. In this paper, the authors present the results of a dynamic principal components factor analysis (PCFA) applied to a panel data set of the 11 major EZ countries from 2000 to 2013, consisting of each country’s spread of long-term interest rate over Germany as dependent variable, and an array of leading fiscal and macroeconomic indicators of solvency fiscal effort and its sustainability.
Findings
The authors have been able to identify the role of these indicators that combine themselves as significant latent variables in boosting spreads. Moreover, the large joint deterioration of these variables is identifiably located between 2009 and 2012 and particularly for the group of countries under most severe default risk (with Italy and France as borderline cases). The authors also find evidence that the announcement of the European Central Bank Outright Monetary Transactions program has improved the sustainability assessment of sovereign debts.
Originality/value
Dynamic PCFA is a rather unusual technique with respect to standard econometric tests of models, which is particularly well-suited to reduce the number of variables in a data set by extracting meaningful linear combinations from the observed variables that may concur to explain a given phenomenon (the dependent variable). These combinations, called “common factors”, can be interpreted as latent, non-observable variables.
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The new economic-policy regime in Sweden in the 1990s included deregulation, central-bank independence, inflation targets and fiscal rules but also active labour market policy and…
Abstract
The new economic-policy regime in Sweden in the 1990s included deregulation, central-bank independence, inflation targets and fiscal rules but also active labour market policy and voluntary incomes policy. This chapter describes the content, determinants and performance of the new economic policy in Sweden in a comparative, mainly Nordic, perspective. The new economic-policy regime is explained by the deep recession and budget crisis in the early 1990s, new economic ideas and the power of economic experts. In the 1998–2007 period, Sweden displayed relatively low inflation and high productivity growth, but unemployment was high, especially by national standards. The restrictive monetary policy was responsible for the low inflation, and the dynamic (ICT) sector was decisive for the productivity miracle. Furthermore, productivity increases in the ICT sector largely explains why the Central Bank undershot its inflation target in the late 1990s and early 2000s. The new economic-policy regime in Sweden performed well during the global financial crisis. However, as in other OECD countries, the moderate increase in unemployment was largely attributed to labour hoarding. And the rapid recovery of the Baltic countries made it possible for Sweden to avoid a bank crisis.
Joseph Martin and Eric A. Scorsone
In 2001, the first municipal consolidation occurred in over 100 years in Michigan between two cities and one village in Michigan's rural Upper Peninsula, forming the City of Iron…
Abstract
In 2001, the first municipal consolidation occurred in over 100 years in Michigan between two cities and one village in Michigan's rural Upper Peninsula, forming the City of Iron River. The three units of government combined to have a population of 3,391 within the newly incorporated boundaries. Driving the consolidation was continual population loss and erosion of the economic tax base of the individual municipal governments since the 1960s. This study sought to assess whether, five years after the consolidation, the governments had saved money as compared to a peer group of governments in Michigan. The findings indicate that the new city of Iron River was able to provide some evidence of cost control and savings following the consolidation.
Sherine Al-shawarby and Mai El Mossallamy
This paper aims to estimate a New Keynesian small open economy dynamic stochastic general equilibrium (DSGE) model for Egypt using Bayesian techniques and data for the period…
Abstract
Purpose
This paper aims to estimate a New Keynesian small open economy dynamic stochastic general equilibrium (DSGE) model for Egypt using Bayesian techniques and data for the period FY2004/2005:Q1-FY2015/2016:Q4 to assess monetary and fiscal policy interactions and their impact on economic stabilization. Outcomes of monetary and fiscal authority commitment to policy instruments, interest rate, government spending and taxes, are evaluated using Taylor-type and optimal simple rules.
Design/methodology/approach
The study extends the stylized micro-founded small open economy New Keynesian DSGE model, proposed by Lubik and Schorfheide (2007), by explicitly introducing fiscal policy behavior into the model (Fragetta and Kirsanova, 2010 and Çebi, 2011). The model is calibrated using quarterly data for Egypt on key macroeconomic variables during FY2004/2005:Q1-FY2015/2016:Q4; and Bayesian methods are used in estimation.
Findings
The results show that monetary and fiscal policy instruments in Egypt contribute to economic stability through their effects on inflation, output and debt stock. The monetary policy Taylor rule estimates reveal that the Central Bank of Egypt (CBE) attaches significant importance to anti-inflationary policy and (to a lesser extent) to output targeting but responds weakly to nominal exchange rate variations. CBE decisions are significantly influenced by interest rate smoothing. Egyptian fiscal policy has an important role in output and government debt stabilization. Additionally, the fiscal authority chooses pro-cyclical government spending and counter-cyclical tax policies for output stabilization. Again, past values of the fiscal instruments are influential in the evolution of the future fiscal policy-making process.
Originality/value
A few studies have examined the interaction between monetary and fiscal policy in Egypt within a unified framework. The presented paper integrates the monetary and fiscal policy analysis within a unified dynamic general equilibrium open economy rational expectations framework. Without such a framework, it would not be easy to jointly analyze monetary and fiscal transmission mechanisms for output, inflation and debt. Also, it would be neither possible to contrast the outcome of monetary and fiscal authorities commitment to a simple Taylor instrument rule vis-à-vis optimal policy outcomes nor to assess the behavior of monetary and fiscal agents in macroeconomic stability in context of an active/passive policy decisions framework.
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Both the IMF and the UN Economic Commission for Latin America and the Caribbean forecast growth of 2.0% this year, driven by tourism. Tourism accounts indirectly for almost 40% of…
Details
DOI: 10.1108/OXAN-DB275764
ISSN: 2633-304X
Keywords
Geographic
Topical
Kazakhstan's economy is coming out of a period of subdued growth. An improved external environment, increased oil production and the delayed impacts of past fiscal spending are…
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DOI: 10.1108/OXAN-DB224280
ISSN: 2633-304X
Keywords
Geographic
Topical