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Book part
Publication date: 13 May 2019

Rosaria Rita Canale and Rajmund Mirdala

This chapter is devoted to fiscal policy theory and to how its evolution influenced the policy principles implemented from the end of the World War II to the present. It…

Abstract

This chapter is devoted to fiscal policy theory and to how its evolution influenced the policy principles implemented from the end of the World War II to the present. It shows how the theoretical foundations evolved, from the Keynesian theory according to which public expenditure was conceived as an instrument to sustain aggregate demand and achieve full employment, to the present theoretical framework in which, following the intertemporal approach, it has been downgraded to an external shock. The public debt issue is examined with the aim of explaining why sound public finance represents a primary policy objective in the Eurozone.

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Fiscal and Monetary Policy in the Eurozone: Theoretical Concepts and Empirical Evidence
Type: Book
ISBN: 978-1-78743-793-7

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Public Policy and Governance Frontiers in New Zealand
Type: Book
ISBN: 978-1-83867-455-7

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Book part
Publication date: 10 February 2015

Cornel Ban

Soon after the Lehman crisis, the International Monetary Fund (IMF) surprised its critics with a reconsideration of its research and advice on fiscal policy. The paper…

Abstract

Soon after the Lehman crisis, the International Monetary Fund (IMF) surprised its critics with a reconsideration of its research and advice on fiscal policy. The paper traces the influence that the Fund’s senior management and research elite has had on the recalibration of the IMF’s doctrine on fiscal policy. The findings suggest that overall there has been some selective incorporation of unorthodox ideas in the Fund’s fiscal doctrine, while the strong thesis that austerity has expansionary effects has been rejected. Indeed, the Fund’s new orthodoxy is concerned with the recessionary effects of fiscal consolidation and, more recently, endorses calls for a more progressive adjustment of the costs of fiscal sustainability. These changes notwithstanding, the IMF’s adaptive incremental transformation on fiscal policy issues falls short of a paradigm shift and is best conceived of as an important recalibration of the precrisis status quo.

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Elites on Trial
Type: Book
ISBN: 978-1-78441-680-5

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Book part
Publication date: 18 October 2011

Lennart Erixon

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…

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.

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The Nordic Varieties of Capitalism
Type: Book
ISBN: 978-0-85724-778-0

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Article
Publication date: 4 May 2020

Naser Yenus Nuru

The main purpose of this study is to see the macroeconomic effects of monetary and fiscal policy shocks in South Africa.

Abstract

Purpose

The main purpose of this study is to see the macroeconomic effects of monetary and fiscal policy shocks in South Africa.

Design/methodology/approach

The joint effects of monetary and fiscal policy are analyzed by applying short-run contemporaneous restrictions for the identification of shocks in an SVAR in order to derive impulse response functions. Hence, a general AB model of (Amisano and Giannini, 1997) identification scheme, which is not recursive, is employed in this study.

Findings

The author shows that monetary tightening leads to a fall in real economic activity and depreciates the exchange rate. And in regard to the fiscal policy, the author calculates an initial government spending multiplier of 0.20, which later peaks at 0.40. The tax multiplier is almost 0 on impact and statistically insignificant. However, the author finds evidence supporting the existence of accommodative stance between monetary policy and fiscal policy, which is important for economic and political decision-making.

Originality/value

Empirical studies that deal with the joint effects of monetary and fiscal policy for South Africa through the SVAR framework are quite limited. This paper, therefore, contributes to the empirical literature on the effects of monetary and fiscal policy in a small open economy like South Africa.

Details

African Journal of Economic and Management Studies, vol. 11 no. 4
Type: Research Article
ISSN: 2040-0705

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Article
Publication date: 4 June 2018

Duy-Tung Bui

The purpose of this paper is to examine the impacts of fiscal policy, namely, net tax and government expenditure on national saving and its nonlinearity. The author first…

Abstract

Purpose

The purpose of this paper is to examine the impacts of fiscal policy, namely, net tax and government expenditure on national saving and its nonlinearity. The author first investigates whether the impacts of fiscal policy on national saving have changed after the global financial crisis of 2008. Then, the author tests the nonlinearity of the relationship by taking account of the economic cycle, namely, economic expansion (boom) and economic recession (bust).

Design/methodology/approach

The empirical model bases on a reduced-form equation with national saving as a dependent variable, lagged value of national saving, output gap and fiscal policy as independent variables. The two-step system GMM approach was employed to estimate the empirical model, using a panel of 23 emerging Asian economies in the period of 1990-2015.

Findings

The empirical results show that tax policy and expenditure policy follow the predictions of the overlapping generation model with finite horizon and the Keynesian view. The nonlinearity of fiscal policy is twofold. The conduct of fiscal policy in the period after 2008 seems effective, while the effect is insignificant in the period before 2008. Likewise, fiscal policy tends to have more significant effects in bust cycle. The effect of tax policy is increased during recession, while the effect of government spending is more pronounced during economic downturn.

Originality/value

The contributions of this paper are twofold. First, it is shown that fiscal policies in the region had more impacts on national saving after the global financial crisis of 2008. Second, the research confirms nonlinear impact of fiscal policy on saving behavior during economic recession and economic boom.

Details

Journal of Asian Business and Economic Studies, vol. 25 no. 1
Type: Research Article
ISSN: 2515-964X

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Article
Publication date: 10 October 2016

Alessandro Morselli

The purpose of this paper is to investigate whether there is room for a stabilising fiscal policy, through an analysis of the supporters of the new classical economics and…

Abstract

Purpose

The purpose of this paper is to investigate whether there is room for a stabilising fiscal policy, through an analysis of the supporters of the new classical economics and the supporters of the new Keynesian economics. There are no reliable results on the Keynesian and non-Keynesian effects of fiscal policies. As such, the policy-mix becomes a problem of theoretical approach, in the sense of a strategic game between monetary authorities and tax authorities (among them). This points to the problem of coordination between budgetary authorities as being the central debate within the Eurozone. The end-result is that without fiscal policy coordination, Eurozone member states are working on a series of non-cooperative games that are inefficient, because no player can improve its position by unilaterally changing its strategy.

Design/methodology/approach

The analysis starts from the experience of three countries in the 1980s, these are Denmark, Ireland and Sweden. In all three cases the adoption of restrictive budget policies has provoked a strong, rapid and enduring resizing of public debt, and growth did not weaken, moreover it accelerated. In all three cases the logic behind the policy-mix actions allowed the individualisation of the respective roles of fiscal and monetary policies. Fiscal policies were joining with fiscal instruments and reduction in public spending and furthermore monetary policy was accommodated in respect of the budget contraction.

Findings

First, the authors were not able to identify an analytical method that can ensure the success of a fiscal policy. Second, analysing fiscal policies within the Eurozone implies also that the authors reflect on the need for a coordination of these policies. In fact, the authors have shown how the possible coordination of economic policies in the Eurozone would result in major benefits for all member countries.

Originality/value

In the absence of fiscal policy coordination, member states are engaged in a series of non-cooperative games that prove inefficient, when no player is able to improve its position by unilaterally changing its fiscal policy. The coordination of national fiscal policies generates a collective advantage, bringing each state to consistently change its strategies.

Details

Journal of Economic Studies, vol. 43 no. 5
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 1 February 1988

Anthony Clunies Ross

The assignment of targets to instruments in developing countries cannot satisfactorily follow any simple universal rule. Which approach is appropriate is influenced by…

Abstract

The assignment of targets to instruments in developing countries cannot satisfactorily follow any simple universal rule. Which approach is appropriate is influenced by whether the economy is dominated by primary exports, by the importance of the domestic bond market and bank credit, by the extent of existing restriction in foreign exchange and financial markets, by the presence or absence of persistent high inflation, and by the existence or non‐existence of an active international market in the country's currency. Eighteen observations and maxims on stabilisation policy are tentatively drawn (pp. 64–8) from the material reviewed, and the maxims are partly summarised (pp. 69–71) in a schematic assignment, with variations, of targets to instruments.

Details

Journal of Economic Studies, vol. 15 no. 2
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 3 April 2017

Stephanos Papadamou and Trifon Tzivinikos

This paper aims to investigate the effects of contractionary fiscal policy shocks on major Greek macroeconomic variables within a structural vector autoregression…

Abstract

Purpose

This paper aims to investigate the effects of contractionary fiscal policy shocks on major Greek macroeconomic variables within a structural vector autoregression framework while accounting for debt dynamics.

Design/methodology/approach

The sign restriction approach is applied to identify a linear combination of government spending and government revenue shock simultaneously while accounting for debt dynamics. Additionally, output and unemployment responses to fiscal shocks under different scenarios concerning the amalgamation of austerity measures are considered.

Findings

The results indicate that a contractionary consumption policy shock, namely, a 1 per cent decrease in government consumption and a 1 per cent increase in indirect taxes, is preferred, as it produces a minor decrease in output and substantially decreases public debt, while a contractionary wage policy shock is suitable only when the government aims to sharply reduce public debt, as the consequences for the economy are harsh. A contractionary investment policy shock is not recommended, as it triggers a rise in unemployment and a fall in output, while the effect on the public debt is minor.

Practical implications

Policymakers should focus their efforts on reducing unproductive government consumption on the expenditure side. Concerning revenues, the reinforcement of tax administration is recommended to ensure that indirect taxes will be collected.

Originality/value

This paper contributes to the existing literature by providing a disaggregated analysis of the effects of fiscal policy actions in Greece by implementing several fiscal policy scenarios and accounting for the level of public debt. All scenarios are in the vein of the economic adjustment programs guidelines.

Details

Journal of Financial Economic Policy, vol. 9 no. 1
Type: Research Article
ISSN: 1757-6385

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Article
Publication date: 6 April 2021

Opeoluwa Adeniyi Adeosun, Olumide Steven Ayodele and Olajide Clement Jongbo

This study examines and compares different specifications of the fiscal policy rule in the fiscal sustainability analysis of Nigeria.

Abstract

Purpose

This study examines and compares different specifications of the fiscal policy rule in the fiscal sustainability analysis of Nigeria.

Design/methodology/approach

This is methodologically achieved by estimating the baseline constant-parameter and Markov regime switching fiscal models. The asymmetric autoregressive distributed lag fiscal model is also employed to substantiate the differential responses of fiscal authorities to public debt.

Findings

The baseline constant-parameter fiscal model provides mixed results of sustainable and unsustainable fiscal policy. The inconclusiveness is adduced to instability in primary fiscal balance–public debt dynamics. This makes it necessary to capture regime switches in the fiscal policy rule. The Markov switching estimations show a protracted fiscal unsustainable regime that is inconsistent with the intertemporal budget constraint (IBC). The no-Ponzi game and debt stabilizing results of the Markov switching fiscal model further revealed that the transversality and debt stability conditions were not satisfied. Additional findings from the asymmetric autoregressive model estimation show that fiscal consolidation responses vary with contraction and expansion in output and spending, coupled with downturns and upturns in public debt dynamics in both the long and short run. These findings thus confirm the presence of asymmetries in the fiscal policy authorities' reactions to public debt. Further, additional evidences show the violation of the IBC which is exacerbated by the deleterious effect of the pro-cyclical fiscal policy response in boom on the improvement of the primary fiscal balance.

Originality/value

This study deviates from the extant literature by accommodating time variation, periodic switches and fiscal policy asymmetries in the fiscal sustainability analysis of Nigeria.

Details

African Journal of Economic and Management Studies, vol. 12 no. 2
Type: Research Article
ISSN: 2040-0705

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