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1 – 10 of over 1000Ameni 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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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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Cosimo Magazzino, Francesco Felici and Vanja Bozic
The purpose of this paper is to investigate the information content of the variables that can help detecting external and internal imbalances in an early stage. The starting point…
Abstract
Purpose
The purpose of this paper is to investigate the information content of the variables that can help detecting external and internal imbalances in an early stage. The starting point is the Scoreboard, where nine indicators are chosen in order to increase macroeconomic surveillance of all member states.
Design/methodology/approach
This paper provides an overview of the variables that could be informative for imbalances by focusing on EU-27 countries over the period 1960-2010. The number of chosen variables is 28, and they are aggregated in six macro-areas. Therefore, once an imbalance is observed in any of those areas, it is possible to detect in a simple way which specific variable is determining such outcome.
Findings
In general, this approach provides reliable signal to the policy-makers about the indicators that can drive imbalances within the area, shedding light on the relationship among the variables included in the analysis, too.
Research limitations/implications
In fact, the empirical results underline some well-known critical issue for several countries, and is largely in line with results obtained in a variety of EC and OECD studies.
Originality/value
The main added value of the approach adopted in this paper is the introduction of more variables than those initially proposed by the European Commission in the construction of the Scoreboard. This provides more information about the macroeconomic situation in each country, preserving, however, the simplicity of the analysis as the variables are aggregated by homogeneous areas.
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Makoto Kuroki and Katsuhiro Motokawa
This study aims to provide evidence of how budget officers use non-financial and accrual-based cost information in the budgeting process and how the usage of this information is…
Abstract
Purpose
This study aims to provide evidence of how budget officers use non-financial and accrual-based cost information in the budgeting process and how the usage of this information is influenced by financial constraints.
Design/methodology/approach
A randomized survey-based field experiment investigating budget officers in 546 Japanese local governments (LGs) was conducted. This allowed us to identify the budget officers' decision-making in the public sector budgeting process by creating and analyzing primary data with regression models.
Findings
We found that budget officers suppress budget amounts based on non-financial information of good performances. Under fiscal constraints, officers further reduce budget amounts using information on high accrual-based costs and poor non-financial performance.
Originality/value
Our survey-based field experiment allowed us to obtain primary data from officers making budget decisions. To the best of our knowledge, this study provides the first evidence that non-financial good and poor performance information and accrual-based cost information affect budget officers' decision-making under financial constrain.
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The purpose of this paper is to show the asymmetric effects of government spending shocks for South Africa over the period 1960Q1–2014Q2.
Abstract
Purpose
The purpose of this paper is to show the asymmetric effects of government spending shocks for South Africa over the period 1960Q1–2014Q2.
Design/methodology/approach
A threshold vector autoregressive model that allows parameters to switch according to whether a threshold variable crosses an estimated threshold is employed to address the objective of this paper. The threshold value is determined endogenously using Hansen (1996) test. Generalized impulse responses introduced by Koop et al. (1996) are used to study the effects of government spending shocks on growth depending on their size, sign and timing with respect to the economic cycle. The author also uses a Cholesky decomposition identification scheme in order to identify discretionary government spending shocks in the non-linear model.
Findings
The empirical findings support the state-dependent effects of fiscal policy. In particular, the effects of 1 or 2 standard deviations expansionary or contractionary government spending shock on output are very small both on impact and in the long run; and a bit larger in downturns but has only a very limited effect or no effect in times of expansion. This result gives support to the evidence in the recent literature that fiscal policy in developing countries is overwhelmingly procyclical.
Originality/value
It adds to the scarce empirical fiscal literature of the South African economy in particular and developing economies in general by allowing non-linearities to estimate the effect of government spending shocks over economic cycle.
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Mukul G. Asher and Amarendu Nandy
To examine the case for reforming India's current provident and pension fund governance and regulatory structures.
Abstract
Purpose
To examine the case for reforming India's current provident and pension fund governance and regulatory structures.
Design/methodology/approach
The paper reviews various components of India's social security system with a view to identifying reform needs in their governance and regulatory structures. It then assesses the new pension system to be supervised and regulated by the proposed Pension Fund Regulatory and Development Authority (PFRDA).
Findings
The paper finds that the current arrangements do not provide sufficient incentives for professionalism and system‐wide perspective essential to meet India's social security challenges. Urgently operationalizing the PFRDA, and modernizing the relevant laws and regulations could greatly assist in meeting India's social security challenges. Modernization of Employees Provident Fund Organization is also essential.
Research limitations/implications
The analysis suggests that the need for greater professionalism and system‐wide perspective should be accorded high priority by India's provident and pension fund organizations. The analysis in the paper is quite aggregative and qualitative. This underscores the need for more robust database and greater focus on empirical evidence‐based policies in this area.
Originality/value
The paper will provide a better appreciation of the governance and regulatory issues involved in reforming India's provident and pension funds. It will also provide a base for other researchers to identify and undertake more detailed analysis of specific aspects such as ways to internationally benchmark administration and compliance costs of provident and pension fund organizations; achieving coordination among PFRDA, banking, insurance, and capital market regulators.
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