The macroeconomic effects of fiscal consolidation policies in Greece

2017 ◽  
Vol 9 (1) ◽  
pp. 34-49 ◽  
Author(s):  
Stephanos Papadamou ◽  
Trifon Tzivinikos
Keyword(s):  
Fiscal Policy ◽  
Public Debt ◽  
Wage Policy ◽  
Government Consumption ◽  
Content Type ◽  
Indirect Taxes ◽  
Debt Dynamics ◽  
Policy Shocks ◽  
The Government ◽  
A Minor

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.

scholarly journals Effects of trend inflation on monetary policy and fiscal policy shocks in Vietnam

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Le Thanh Ha ◽  
Finch Nigel
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Money Supply ◽  
New Keynesian ◽  
Method Of Moment ◽  
Content Type ◽  
Keynesian Model ◽  
Trend Inflation ◽  
Policy Shocks ◽  
The Government

PurposeThis paper analyzes variations in effects of monetary and fiscal shocks on responses of macroeconomic variables, determinacy region and welfare costs due to changes in trend inflation.Design/methodology/approachThe authors develops the New-Keynesian model, which the central banks can employ either nominal interest rate (IR rule) or money supply (MS rule) to conduct monetary policies. They also use their budgets for capital and recurrent spending to conduct fiscal policies. By using simulated method of moment (SMM) for parameter estimation, the authors characterize Vietnam's economy during 1996Q1 -2015Q1.FindingsThe results report that consequences of monetary policy and fiscal policy shocks become more serious if there is a rise in trend inflation. Furthermore, the money supply might not be an effective instrument and using the government budget for recurrent spending produces severe consequences in the high-trend-inflation economy.Originality/valueThis is the first paper that examines the effects of trend inflation on the monetary and fiscal policy implementation in the case of Vietnam.

Policy asymmetries and fiscal sustainability: evidence from Nigeria

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Opeoluwa Adeniyi Adeosun ◽  
Olumide Steven Ayodele ◽  
Olajide Clement Jongbo
Keyword(s):  
Fiscal Policy ◽  
Public Debt ◽  
Markov Switching ◽  
Fiscal Sustainability ◽  
Constant Parameter ◽  
Policy Rule ◽  
Content Type ◽  
Sustainability Analysis ◽  
Debt Dynamics ◽  
Fiscal Balance

PurposeThis study examines and compares different specifications of the fiscal policy rule in the fiscal sustainability analysis of Nigeria.Design/methodology/approachThis 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.FindingsThe 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/valueThis study deviates from the extant literature by accommodating time variation, periodic switches and fiscal policy asymmetries in the fiscal sustainability analysis of Nigeria.

Mexico debt dynamics accelerate, but are not worrying

2015 ◽  
Keyword(s):  
Public Sector ◽  
Public Debt ◽  
External Debt ◽  
Fiscal Deficits ◽  
Content Type ◽  
Debt Accumulation ◽  
Credit Line ◽  
Debt Dynamics ◽  
Global Liquidity ◽  
The Government

Subject The outlook for public debt in Mexico. Significance Total public sector debt stood at 505.9 billion dollars in May, with external debt accounting for around one third of that amount, according to the most recent Finance Ministry figures. Fiscal deficits have pushed up indebtedness in recent years, but falling costs have provided a counterweight to the debt accumulation. Impacts Only an external shock will significantly diminish Mexico's creditworthiness. Public debt should reach 50-55% of GDP when the government absorbs Pemex's pension commitments. In the case of a global liquidity crunch, Mexico could activate its IMF credit line, allowing it to borrow up to 72 billion dollars.

Fiscal risks are low but rising in Turkey

2016 ◽  
Keyword(s):  
Fiscal Policy ◽  
Public Debt ◽  
Global Economy ◽  
Current Account Deficit ◽  
Private Investment ◽  
Fiscal Sustainability ◽  
Budget Deficits ◽  
Content Type ◽  
The Public ◽  
The Government

Subject Turkey's fiscal sustainability. Significance By keeping fiscal deficits low, the government has steadily reduced the public debt to about 33% of GDP. However, fiscal policy is now shoring up growth. There is also concern about the lack of further public financial reform, insufficient transparency and contingent liabilities. Impacts Wider budget deficits may not affect growth notably, given the weak global economy and low private investment and investor confidence. Turkey will have one of Europe's lowest public-debt levels, but investors may need to pay more attention to public finances. Fiscal policy could join more urgent worries about politics, the current-account deficit, private-sector debt and monetary policy.

The South African public service wage bill deadlock in 2021: living on the edge

2021 ◽  
Vol 11 (4) ◽  
pp. 1-15
Author(s):  
Marianne Matthee ◽  
Albert Wöcke
Keyword(s):  
Fiscal Policy ◽  
Learning Outcomes ◽  
South African ◽  
Public Service ◽  
Subject Area ◽  
The South ◽  
Content Type ◽  
Academic Level ◽  
Finance Minister ◽  
The Government

Subject area Macro-Economics. Study level/applicability Undergraduate and MBA. Case overview The COVID 19 pandemic-related restrictions devastated South Africa’s economy in 2020 and although the restrictions were generally less damaging than in 2020, the government had to budget for vaccinations and rebuild the economy. Public service unions had just announced that they were demanding an increase of 4% above inflation for their members and that they were preparing for a strike. They were bitter about the fact that the South African Government had withdrawn from the last year of a three-year wage agreement in February 2020 and their members had not received an increase for the two years. These demands and Finance Minister Mboweni’s response to them had to consider the structural and cyclical impact on the fiscus and economy. Expected learning outcomes The learning outcomes are as follows: understand the general objectives of fiscal policy and stakeholders’ interests; understand the tradeoffs in fiscal policy and the implications of taking a position; and make recommendations based on reasoned judgements about those recommendations. Complexity academic level Undergraduate and MBA level courses on Macro Economics. Supplementary materials Teaching notes are available for educators only. Subject code CSS 10: Public Sector Management.

Government is unlikely to overhaul Poland’s tax regime

2021 ◽  
Keyword(s):  
Value Added ◽  
Disposable Income ◽  
Policy Preference ◽  
Corporate Taxes ◽  
Value Added Tax ◽  
Alternative Source ◽  
Content Type ◽  
Goods And Services ◽  
Indirect Taxes ◽  
The Government

Significance This continues the policy preference -- out of line with Poland’s peers -- for indirect taxes on goods and services, including a relatively high value-added tax (VAT) rate. The government says the sugar tax aims to curb rising obesity, but critics suspect it is a new way of raising revenue. Impacts Corporate taxes could be raised as an alternative source of revenue. Left unaddressed, the regressive trend in taxes and rising inequality may create an opening for the leftist Spring and Together parties. If UK taxes rise post-pandemic, the relative fall in disposable income could encourage Polish immigrants to return to Poland.

Air pollution and public finance: evidence for European countries

2019 ◽  
Vol 46 (7) ◽  
pp. 1398-1417 ◽  
Author(s):  
Maria Carratù ◽  
Bruno Chiarini ◽  
Antonella D’Agostino ◽  
Elisabetta Marzano ◽  
Andrea Regoli
Keyword(s):  
Public Finance ◽  
Air Pollution ◽  
Fiscal Policy ◽  
Environmental Quality ◽  
Public Debt ◽  
Environmental Performance ◽  
European Countries ◽  
Fiscal Consolidation ◽  
Trade Off ◽  
Content Type

Purpose The purpose of this paper is to investigate whether a statistically significant relationship exists between environmental quality, as measured by consumption-related air pollution, and public debt in Europe. In addition, since the debt burden is one of the most important indicators of fiscal soundness within the European Union (EU) Treaty and the subsequent fiscal compact, the authors propose a simple test to determine whether participation in EU Treaties has shaped the empirical relationship between fiscal policy/public debt and environmental performance. Design/methodology/approach To this end, the authors built a panel data set that covers 24 European countries over the period 1996–2015. Findings The aspect that the authors want to underline is a possible trade off, which is confirmed in the empirical analysis, between the public finance equilibrium and the maintenance of a public good such as air quality. However, there are important non-linearities that shape the interaction between public debt and environmental pollution. Similarly, threshold effects arise when the authors examine the interaction between EU regulation and public debt and when the authors separately examine high debt and low debt countries. When the authors account for the stabilization rules introduced by EU Treaties, a negative effect on pollution is evident; in this way, fiscal consolidation limits the positive effect of fiscal policy. Practical implications The results point out the existence of a potential trade-off between the role of EU as a regulator aiming to mitigate environmental pollution, and its role within the Stability and Growth Pact. The analysis highlights that fiscal consolidation policies, while facilitating the achievement of macroeconomic stability within EU, might have a negative side effect on the environment quality, which spreads beyond the borders of one single country. Originality/value While a number of studies have suggested that fiscal spending might contribute to the level of pollution in European countries, there is scant evidence of the effect of public debt on environmental performance. This lack of scientific knowledge is a serious shortcoming, since it may allow for an underrepresentation of the wide-ranging consequences of stabilization programmes targeting the debt-to-GDP ratio, which could affect environmental quality.

The fiscal policy and the dynamic of the economic cycle

2020 ◽  
Vol 47 (2) ◽  
pp. 231-241
Author(s):  
Huthaifa Alqaralleh
Keyword(s):  
Fiscal Policy ◽  
Threshold Value ◽  
Policy Framework ◽  
Economic Cycle ◽  
Content Type ◽  
Unobserved Component ◽  
Cyclical Fluctuations ◽  
Policy Shocks ◽  
The Business Cycle ◽  
Unobserved Component Model

PurposeThis study seeks to determine in some detail whether the state of the economic cycle matters in considering the effects of fiscal policy shocks on output.Design/methodology/approachThis issue leads us to two primary objectives: to define the economic cycle measuring the gap with the unobserved component model with a smoother trend, which can be used efficiently to generate gap measures for use in real-time decision-making and avoids the criticisms of measures based on contentious structural models; and to look empirically at the fiscal policy stance over the phases of the cycle, bearing in mind the short time variation and smooth change between the cycle regimes.FindingsThis paper provides evidence that the fiscal policy rule seems to operate with varied coefficients depending on whether the transition variable is below or above the estimated threshold value.Originality/valueThe asymmetric response gives policymakers the impetus to reconsider the fiscal policy framework because of specific circumstances, such as shocks that can dramatically affect the nominal features of the business cycle. Put differently, stable and moderate fiscal policies would at least not contribute to cyclical fluctuations, and therefore would be better than what we have typically experienced. There would, therefore, seem to be a distinct need to address the properties of economic cycles under different fiscal policy rules.

ASSESSING THE RISKS TO THE JAPANESE GOVERNMENT BOND MARKET

2013 ◽  
Vol 04 (01) ◽  
pp. 1350002 ◽  
Author(s):  
WAIKEI RAPHAEL LAM ◽  
KIICHI TOKUOKA
Keyword(s):  
Public Debt ◽  
Financial Distress ◽  
Financial Stability ◽  
Debt Crisis ◽  
Japanese Government ◽  
Government Bond ◽  
Bond Yields ◽  
Market Capacity ◽  
Debt Dynamics ◽  
The Government

Despite the rise in public debt, Japanese Government Bond (JGB) yields have remained low and stable, supported by steady inflows from household and corporate sectors, high domestic ownership of JGBs, and safe-haven flows in light of ongoing European debt crisis. Nonetheless, the market capacity to absorb new government debt will likely decline over time as the population ages, posing risks for the JGB market. This paper examines the key risks of the JGB market, including a decline of private sector savings and potential spillovers from global financial distress, which could push up the government bond yields. A sharp rise in interest rate could pose challenges on public debt dynamics and financial stability in Japan. In that regard, more ambitious fiscal reforms to reduce public debt will help limit these risks.

Fiscal Policy, Public Debt and the World Crisis

2014 ◽  
Vol 15 (2) ◽  
pp. 225-242 ◽  
Author(s):  
Gauti B. Eggertsson
Keyword(s):  
Fiscal Policy ◽  
Public Debt ◽  
Dynamic Stochastic General Equilibrium ◽  
Equilibrium Analysis ◽  
World Crisis ◽  
Debt Dynamics ◽  
World Economic ◽  
Dynamic Stochastic ◽  
World Economic Crisis

AbstractThis study summarizes a theory of the origin of the current world economic crisis and the role of fiscal policy in mitigating its effect. The perspective is dynamic stochastic general equilibrium analysis. Overall, the model analysis suggests a strong case for fiscal policy if the monetary authority is unable/unwilling to close the output gap. This remains the case, even when explicitly taking into account public debt dynamics.

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