scholarly journals HOW FAR FISCAL DOMINANCE MATTERS FOR A DEVELOPING ECONOMY

2021 ◽  
Vol 3 (38) ◽  
pp. 214-221
Author(s):  
S. Shvets
Keyword(s):  
Public Debt ◽  
Public Investment ◽  
Sustainable Growth ◽  
Investment Efficiency ◽  
Developing Economy ◽  
Growth Path ◽  
Fiscal Multiplier ◽  
The Public ◽  
Fiscal Dominance ◽  
Effective Policy

Abstract. The growing public debt that intensifies with a frequency of economic crises grasps a high rating in the current economic debates. There is an urgent need for implementing an effective policy regime targeted at handling the public debt problem. The fiscal dominance policy, usually practiced to ensure strong recovery and growth, has a strict guideline for identifying a degree of fiscal expansion and monetary accommodation. Given a dilemma between growth and debt burden, the government should mobilize the most effective policy instrument targeted at the highest fiscal multiplier and does not cross a debt-to-GDP threshold ratio. Following an effective practice of fiscal management, this instrument is associated with public investment. The paper aims to assess the magnitude of the public investment multiplier by following a stable growth path limited by a prescribed debt limitation for a developing economy. To achieve the goal, we use an elaborated New Keynesian model, which besides an active fiscal and monetary stances, also includes a high share of non-Ricardian households, the separability in preferences between private and government consumption, a low level of public investment efficiency, and the substantiated degree of nominal and real rigidities. The obtained present value cumulative output multiplier for public investment grasps the point 2.0 in maximum over two years of the impulse response function. The multiplier effect proves to be high enough to offset temporary public debt growth and maintain a sustainable growth path over the long run. The verified measure of fiscal dominance contradicts an active monetary stance and, among other things, has to be counterbalanced by an appropriate efficiency and productivity of public investment and degree of price stickiness. Keywords: fiscal policy, monetary policy, fiscal-monetary interaction, fiscal dominance, fiscal multiplier, DSGE modeling. JEL Classification O47, E63, H63, D58 Formulas: 1; fig.: 2; tabl.: 0; bibl.: 21.

scholarly journals The Risk of Long-Term Financing of Public Investments

2019 ◽  
Vol 2 (2) ◽  
pp. 42
Author(s):  
Krzysztof Jarosiński ◽  
Benedykt Opałka
Keyword(s):  
Public Debt ◽  
Negative Impact ◽  
Capital Expenditure ◽  
Public Investment ◽  
Point Of View ◽  
Risk Category ◽  
Investment Projects ◽  
The Public ◽  
Public Investments ◽  
The Impact

The risk of financing of public investments is a phenomenon that accompanies development processes in a permanent manner. Investments in the public sector are generally characterized by relatively long implementation cycles and involve significant capital expenditure and the necessity of often parallel running a large number of investment projects. In the processes of this type of investment a specific risk category of financing of this type of investment is quite often taken into account, given that such projects are financed mainly from budgetary resources: the state budget and self-government budgets. Economic practice indicates an importance of the proper selection of the method of the financing of new investments and taking into account new funds from various sources. This situation is often the result of a shortage of budgetary resources from which public investments could be financed. There may be difficulties in financing investments resulting from the emergence of a risk of budgetary deficit and the public debt. This risk may have a negative impact on investment decisions and may adversely affect the future course of ongoing investment projects. The purpose of the paper is to undertake studies on the conditions of financing investments from the point of view of the possibility of budget deficit and public debt and the impact of changes in the financial situation on the overall level of risk of public investment. The text is an invitation to undertake a broader discussion on financing public investments in conditions of limited public financial resources.

scholarly journals Public Investment in Bolivia

2019 ◽  
Vol 2019 (151) ◽  
Author(s):  
Yehenew Endegnanew ◽  
Dawit Tessema
Keyword(s):  
Public Debt ◽  
Large Scale ◽  
Structural Model ◽  
Public Investment ◽  
External Current ◽  
Medium Term ◽  
The Public ◽  
Current Account Deficits ◽  
Social And Economic Development ◽  
The Face

Bolivia’s “Patriotic Agenda 2025” sets targets for social and economic development propelled by state-led industrialization under a five-year development plan (2016–2020). Large-scale public investment has aimed to fill infrastructure gaps and raise productivity to ensure sustained medium-term growth. Pursuit of these goals in a period of lower hydrocarbon revenues has, however, contributed to widening fiscal and external current account deficits. The paper uses a structural model to outline different scenarios for the level of public investment in the face of declining hydrocarbon revenues. It finds that if public investment is sustained at current levels as a share of GDP while hydrocarbon revenues continue to decline, the sustainability of the public debt could be called into question.

DEBT POLICY RULE, PRODUCTIVE GOVERNMENT SPENDING, AND MULTIPLE GROWTH PATHS: A NOTE

2012 ◽  
Vol 17 (4) ◽  
pp. 947-954 ◽  
Author(s):  
Alexandru Minea ◽  
Patrick Villieu
Keyword(s):  
Public Debt ◽  
Public Investment ◽  
High Growth ◽  
Growth Effect ◽  
The Public ◽  
Long Run ◽  
Endogenous Growth Model ◽  
Productive Government Spending ◽  
Definition Of ◽  
Debt Policy

In a very interesting endogenous growth model, Futagami, Iwaisako, and Ohdoi [Macroeconomic Dynamics 12 (2008), 445–462] study the long-run growth effect of borrowing for public investment. Their model exhibits (i) the multiplicity of balanced growth paths (BGPs) in the long run (two steady states) and (ii) a possible indeterminacy of the transition path to the high-growth BGP. The goal of this note is to show that their results depend on a sharp assumption, namely the definition of the public debt target as a ratio to private capital. If the target is defined in terms of public debt–to–GDP ratio, both results vanish: the model exhibits a unique BGP (no multiplicity) and the adjustment path to this unique equilibrium is determinate (no indeterminacy).

scholarly journals Scenario assessment of fiscal pro-investment expansion in Ukraine

2020 ◽  
Vol 2020 (9) ◽  
pp. 80-94
Author(s):  
Serhij SHVETS ◽  
Keyword(s):  
Capital Investment ◽  
Public Investment ◽  
Additional Increase ◽  
Fiscal Multiplier ◽  
The Public ◽  
Debt Burden ◽  
Scenario Assessment ◽  
Reported Data ◽  
Investment Multiplier ◽  
Significant Factors

The article identifies the role and place of public investment as one of the significant factors of growth. As a high value of fiscal multiplier, public investment is an effective countercyclical measure to restore economic growth. The goal of the study was to estimate the aftereffect of fiscal pro-investment expansion in Ukraine without increasing the debt burden. The monetary sector should support the increased public investment financed through the domestic government borrowing by expanding the money supply at a rate exceeding the debt growth to minimize the crowding-out effect and support the real sector’s demand for credits. According to the scenario results, the limit of increased public investment in Ukraine compared to the reported data without increased debt burden during the relatively stable 2016?2019 could be 11-19%. The short-term effect of implementing such fiscal pro-investment expansion provided an additional increase in GDP by 1.3-1.8%. Every UAH borrowed by the state and directed to capital investment could add more than 4 UAH of product annually in 2017?2019, which corresponded with the public investment multiplier equal to 1.1. These growth targets may be more significant during COVID-19 crisis, as the fiscal multiplier is usually higher in recessions. Since the indicated growth rates depend on the selected strategic priorities for capital investment in facilities with the highest return, the obtained results assume the development of additional volumes of public investment in the most efficient way providing the expanding of aggregate supply in the longer term.

scholarly journals Fiscal Rule and Public Investment in Chile

2021 ◽  
Author(s):  
J. Rodrigo Fuentes ◽  
Klaus Schmidt-Hebbel ◽  
Raimundo Soto
Keyword(s):  
Public Debt ◽  
Negative Impact ◽  
Public Investment ◽  
Two Dimensions ◽  
The Public ◽  
Fiscal Rule ◽  
Substantial Progress ◽  
Escape Clauses ◽  
Empirical Approaches

This paper reviews the design and operation of the Chilean fiscal rule in the past 30 years. Using different empirical approaches, we assess its impact on fiscal procyclicality, public debt, and public investment. While there has been substantial progress in building a modern institutional framework for fiscal policy, we find that the rule is incomplete in two dimensions: it lacks an escape clause, and it needs to supplement the budget balance rule with a debt rule. The former is seen in the pervasive inability of the authorities to steer fiscal accounts back to their long-term sustainable path after the rule was breached the rule in 2009. The latter issue is illustrated by the speedy build-up of the public debt as a result of the need to finance fiscal deficits. We do not find, nevertheless, a negative impact of the rule on public investment. We propose reforms to improve on transparency and accountability, as well as to supplement the rule with escape clauses and a debt anchor.

scholarly journals ACUMULACIÓN DE DEUDA PÚBLICA Y POLÍTICA FISCAL EN AMÉRICA LATINA

2020 ◽  
Vol 79 (314) ◽  
pp. 3
Author(s):  
Josué Zavaleta González
Keyword(s):  
Latin America ◽  
Fiscal Policy ◽  
Gross Domestic Product ◽  
Economic Crisis ◽  
Public Debt ◽  
Public Investment ◽  
The Public ◽  
Debt Accumulation ◽  
Fiscal Austerity ◽  
America Latina

<p>La acumulación de deuda pública es uno de los problemas que más ocupa la atención del gobierno de cualquier economía. En relación con esto, desde un enfoque ortodoxo, las medidas de austeridad fiscal son la única alternativa para evitar y contrarrestar un grave problema de endeudamiento público. No obstante, recientemente se ha demostrado que la capacidad de estas medidas para resolver este problema es limitada y que incluso podrían agravarlo. En este contexto, y como una respuesta a las dificultades económicas que impondrá la crisis económica mundial por Covid-19, en este artículo demostramos tanto de forma teórica como empírica que una política fiscal expansiva, enfocada en incrementar la inversión pública, tiene la capacidad de reducir, o al menos controlar, la acumulación de deuda pública como porcentaje del producto interno bruto (PIB).</p><p> </p><p align="center">PUBLIC DEBT ACCUMULATION AND FISCAL POLICY IN LATIN AMERICA</p><p align="center"><strong>ABSTRACT </strong></p>Public debt accumulation is one of the problems to which governments pay more attention. In this regard, from an orthodox approach, fiscal austerity measures are the unique alternative to avoid and counteract a serious problem of public debt accumulation. However, it has recently been shown that the capacity of these policies to respond to this problem is limited and even could aggravate it. In this context, and as a response to the economic difficulties resulted from the global economic crisis imposed by the Covid-19, the aim of this paper is to show theoretically and empirically that an expansive fiscal policy, focused on increasing public investment, could reduce, or at least control, the public debt accumulation as a percentage of Gross Domestic Product (GDP).

Public Investment and Its Effects on the Burden of the Public Debt

1987 ◽  
Vol 54 (1) ◽  
pp. 145 ◽  
Author(s):  
Jurgen Backhaus ◽  
Randall Holcombe ◽  
Asghar Zardkoohi
Keyword(s):  
Public Debt ◽  
Public Investment ◽  
The Public

Re-examining public debt and current account dynamics: SVAR evidence from Ethiopia

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Wondemhunegn Ezezew Melesse
Keyword(s):  
Current Account ◽  
Public Debt ◽  
Public Investment ◽  
Government Debt ◽  
Current Account Balance ◽  
Investment Efficiency ◽  
Content Type ◽  
Current Account Dynamics ◽  
Fiscal Balance ◽  
Short Run

PurposePublic debt management is now an integral part of overall macroeconomic management in many developing and emerging market economies. Preventing unsustainable debt accumulation and maintaining healthy fiscal profile begins with understanding its key drivers both in the short and in the long run. The purpose of this paper is to analyze public debt and current account dynamics in Ethiopia.Design/methodology/approachThis study applies structural vector auto-regressive (SVAR) model on annual time series data to study general government debt and current account dynamics in Ethiopia for the period 1980–2018.FindingsBoth the impulse response and forecast error variance decomposition results confirm that fiscal balance exerts the strongest influence on both government debt and current account balance in the short run. In addition, own shock as well as shocks stemming from gross fixed capital formation and growth have significant effects on general government debt. The findings were robust to alternative data transformation, differing Choleski ordering of the model variables, and inclusion of exogenous deterministic terms that capture changes in the political landscape.Practical implicationsThe most important implication is that since fiscal balance is the strongest determinant of both public debt and current account balance, public investment efficiency is relevant here than anywhere else in the national economy. A recent study by Barhoumi et al. (2018) found that the sub-Saharan region lags behind its peers in terms of public sector investment efficiency with inefficiency gap of as large as 54% depending on the indicator variable for public investment output. Improving public investment spending efficiency would reduce government debt by enhancing productivity and growth – which has significant negative effect on public debt.Originality/valueFirst, the few studies conducted on Ethiopia are dominated by single equation specifications and do not account for the possibility of endogenous feedback effects among the model variables. Second, still equally important is the role of rising gross fixed capital formation in Ethiopia, which increased from about 13% (relative to GDP) in the 1980s to about 35% in the 2010s. Ignoring this variable amounts to a major model misspecification when analyzing short-run macro dynamics in low-income economies. Finally, the paper complements existing limited studies on Ethiopia by comparing the strength of shock propagation mechanisms using alternative data transformation techniques.

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