scholarly journals Concept of Innovative Fiscal Policy: Theory and Empirical Evidence

Competitio ◽  
2020 ◽  
Vol 10 (2) ◽  
Author(s):  
Oliver Kovacs
Keyword(s):  
Fiscal Policy ◽  
Social Trust ◽  
Disruptive Innovation ◽  
Jel Classification ◽  
Fiscal Sustainability ◽  
Growth Potential ◽  
Fiscal Rules ◽  
Future Challenges ◽  
The Government ◽  
The One

This contribution addresses the question of what are the main constituents of an innovative fiscal policy in the context of sustainability. We apply the concept of sustaining and disruptive innovation to fiscal policy. On the one hand, innovative fiscal policy is able to be sustaining whereby public finance will incrementally improve without leaving its decisive structure. On the other hand, innovative fiscal policy should be disruptive as well in the context of long term sustainability, whereby the structure of public finances can be profoundly restructured as a reaction to future challenges. By using the Finnish recovery in the early 1990s, we can refine our argument about the use and necessity of the mixture of fiscal rules and independent institutions in favour of fiscal sustainability. We also shed light on the key sources of the expansionary consolidation that emerged in the aftermath of the fiscal adjustment in the early 1990s. We emphasise that innovative fiscal policy with a mixture of legislated fiscal rules and independent fiscal anchor is more likely to be associated with sustainability if the economy has weaker growth potential which does not provide enough social trust towards the consolidation efforts of the government. Journal of Economic Literature (JEL) classification: E61, E62, Q01

scholarly journals Formation of Long-Term Fiscal Sustainability of Kazakhstan Using the Rule Structural Budget Balance

2021 ◽  
Vol 16 (3) ◽  
pp. 117-127
Author(s):  
S. N. Alpysbayeva ◽  
S. Zh. Shuneyev ◽  
N. N. Zhanakova ◽  
K. Beisengazin
Keyword(s):  
Fiscal Policy ◽  
Fiscal Sustainability ◽  
Fiscal Rules ◽  
Output Gap ◽  
Potential Gdp ◽  
The Government ◽  
Main Regulator ◽  
Adjustment System ◽  
Dynamic Series

The purpose of the study is to substantiate the potential of using the results of modeling potential GDP and estimating the output gap to comply with fiscal rules that are adequate for the corresponding economic cycle of the economy of Kazakhstan. The methods of economic, statistical, graphical, system, functional analysis, economic and mathematical modeling are applied. To achieve this goal, the analysis of Kazakhstan’s fiscal stability was carried out based on the assessment of Kazakhstan’s potential GDP and the calculation of output gaps, which were carried out based on the dynamic series method of the reported real GDP in 2005 prices for 1991-2019 using the Hodrick-Prescott filter (CP) using the EViews 10 econometric package. The current mechanism for using the output gap indicator in Kazakhstan’s fiscal policy does not have sufficient flexibility. For a timely response of the budget system to changes in the economic situation in the country or abroad, considering the output gap, it is important to introduce an automatic adjustment system that can eliminate contradictions and inconsistencies when making macroeconomic policy decisions by the main regulator and the government of the country. To do this, there is a need to revise the existing fiscal policy based on building a system of new budget rules on countercyclical principles. The proposed alternative fiscal model with the introduction of the rule on the structural balance of the budget is aimed at ensuring long-term fiscal stability, which does not allow for a pro-cyclical policy.

scholarly journals Impact of Governments’ Fiscal Behaviors on Public Finance Sustainability: A Comparative Study

2021 ◽  
Vol 13 (7) ◽  
pp. 3739
Author(s):  
Mihaela Onofrei ◽  
Tudorel Toader ◽  
Anca Florentina Vatamanu ◽  
Florin Oprea
Keyword(s):  
Public Finance ◽  
Fiscal Policy ◽  
Panel Data Analysis ◽  
Legal Framework ◽  
Fiscal Sustainability ◽  
Fiscal Rules ◽  
Control Mechanisms ◽  
Fiscal Responsibility ◽  
Eu Countries ◽  
The Government

The aim of this research is to highlight the specificity of fiscal sustainability in some developing EU countries by analyzing the implications of fiscal rules on governments’ fiscal behaviors. We employ a panel data analysis to evaluate developing EU countries for the period 2000–2014 and we investigate the status of convergence of fiscal responsibility coordinates by computing the convergence score of fiscal responsibility. The research is based on interdisciplinary coordinates and helps to consolidate judgments from both legal and financial perspectives, making a contribution to the literature that investigates the relationship between the legal framework related to government decision-making and public finance sustainability. The choice of the study sample in relation to developing EU countries represents a contribution and a point of reference for the literature that investigates the sustainability of developing EU countries and highlights the importance of fiscal risk management and control mechanisms in enhancing the performance of the public sector and fiscal sustainability. The results suggest that it is important to reinforce the interaction between the legal framework and the institutional one by identifying good practices for designing and operating effective independent fiscal institutions, making them capable not only of advising the government on fiscal policy matters but also of promoting sound fiscal policy and sustainable public finance.

scholarly journals Do Fiscal Rules Constrain Fiscal Policy in Romania?

2020 ◽  
Author(s):  
Alina Daniela Vodă ◽  
Gabriela Dobrotă ◽  
Loredana Andreea Cristea ◽  
Bianca Ciocanea
Keyword(s):  
Sustainable Development ◽  
Fiscal Policy ◽  
Granger Causality ◽  
National Level ◽  
Granger Causality Test ◽  
Business Environment ◽  
Economic Life ◽  
Fiscal Sustainability ◽  
Fiscal Rules ◽  
Causality Test

At both macroeconomic and national level, in recent decades, European tax policies have shown a particular interest in addressing the spectrum of risk issues in terms of maturing the business environment and the lack of sustainable development of the economy. In Romania there has been a significant increase in public debt, which is increasingly threatening fiscal sustainability. This is due to fiscal rules that restrict the applicability of fiscal policy to balancing the national economy. However, fiscal policy did not act in the direction of economic recovery during the crisis that started in the last quarter of 2008, which had a negative impact on the Romanian business environment. Objectively, fiscal policy should manifest itself as a general framework of the economy on the basis of which to develop fiscal rules that act in the direction of sustainable development of the business environment and implicitly, of socio-economic life. The research carried out referred to identify how fiscal rules in Romania restrict the application of fiscal policy as well as whether there is an explicit concordance between them. The research methodology aimed to use the ARDL model to apply the Granger causality test, using quarterly data for a set of four indicators, being identified that Romanian fiscal rules restrict fiscal policy. The achieved results highlighted the fact that fiscal rules restrict fiscal policy, being identified a long-run relationship between the analyzed variables and implicitly, a state of instability of the fiscal system in Romania. Keywords: fiscal policy, autoregressive distributed-lagged model, Granger causality test.

scholarly journals Afghanistan: Balancing Social and Security Spending in the Context of a Shrinking Resource Envelope

2014 ◽  
Vol 31 (2) ◽  
pp. 165-197 ◽  
Author(s):  
Aqib Aslam ◽  
Enrico Berkes ◽  
Martin Fukac ◽  
Jeta Menkulasi ◽  
Axel Schimmelpfennig
Keyword(s):  
Central Government ◽  
Fiscal Sustainability ◽  
Growth Potential ◽  
Medium Term ◽  
Public Finances ◽  
Donor Support ◽  
Macroeconomic Impact ◽  
Strategic Policy ◽  
Near Term ◽  
The Government

For Afghanistan, the dual prospect of declining donor support and high ongoing security spending over the medium term keeps its government budget tight. This paper uses a general equilibrium model to capture the security–development trade-off facing the government in its effort to rehabilitate growth and fiscal sustainability. In particular, it considers strategic policy options for counteracting and minimizing the negative macroeconomic impact of possible aid and revenue shortfalls. We find that the mobilization of domestic revenues through changes in tax policy is the preferred policy response for the Afghan central government. Such a response helps to place its finances on a sustainable path in the near term and preserve most of the growth potential. Cutting expenditures balances public finances but causes the economy to permanently shrink. Debt financing helps to preserve much of the economy size but can quickly put the sustainability of public finances at risk.

scholarly journals Fiscal Sustainability in Poland: How Did the Public Policy Shift of 2016–2019 Impact the Country’s Long-Term Sustainability?

Ekonomista ◽  
2021 ◽  
Vol 6 ◽  
Author(s):  
Maciej WYSOCKI ◽  
Cezary WÓJCIK
Keyword(s):  
Fiscal Policy ◽  
Policy Instruments ◽  
Fiscal Sustainability ◽  
Social Programs ◽  
Social Expenditure ◽  
Significant Deterioration ◽  
The Public ◽  
Policy Shift ◽  
The Government

In 2016–2019 Poland experienced a major social and fiscal policy shift: new government decreased the statutory retirement age and launched several new social programs, including the sweeping Family 500+ program under which social expenditure on family and children support increased suddenly from 1.5% to nearly 3% of GDP. Moreover, VAT gap reduction policies have been implemented swiftly. The new policy move became highly controversial. Many economists argued that overall it would lead to a significant deterioration of long-term fiscal sustainability. The government argued in turn that the new program was well financed by a complementary policy of VAT gap reduction and saw no risk to country’s fiscal sustainability. This paper provides one of the first evidence of the adverse effect of the policy shift on long-term fiscal sustainability. The analysis reveals that fiscal sustainability parameters have deteriorated significantly after 2016. Overall, the estimations presented in the paper show that in the period of 2016–2019 fiscal sustainability parameters may have been the lowest since Poland joined the EU in 2004. While these results should be treated with caution as they draw on very recent time series, the deterioration of Poland’s fiscal sustainability raises a pertinent policy question related to country’s capacity to respond to the COVID-19 pandemic, in particular in terms of the ability to use standard and non-standard fiscal policy instruments and monetary policy tools in response to the shock.

How Reform Worked in China

2017 ◽  
Author(s):  
Yingyi Qian
Keyword(s):  
Best Practice ◽  
Transition Economy ◽  
Private Property ◽  
Initial Conditions ◽  
Growth Potential ◽  
The Novel ◽  
Stepping Stones ◽  
Private Property Rights ◽  
The Government ◽  
The One

China’s reform worked and produced one of the most impressive growth in the largest developing and transition economy in the world in the past twenty-two years. That China has managed to grow so rapidly despite the absence of many conventional institutions such as rule of law and secure private property rights is puzzling. To understand how reform works in a developing and transition economy that has great growth potential, it is not enough to study the conventional “best-practice institutions” as a desirable goal. One should also study how feasible, imperfect institutions have evolved to complement the initial conditions and to function as stepping stones in the transition toward the goal. Underlying China’s reform is a serial of institutional changes concerning the market, firms, and the government in the novel form of “transitional institutions.” These institutions succeed when they achieve two objectives at the same time: to improve economic efficiency by unleashing the standard forces of incentives and competition on the one hand, and to make the reform a win-win game and thus interest compatible for those in power on the other.

scholarly journals RULES AND ADJUSTMENT OF FISCAL POLICY

2018 ◽  
Vol 2018 (11-12) ◽  
pp. 47-59
Author(s):  
Vasyl KUDRYASHOV ◽  
Keyword(s):  
Fiscal Policy ◽  
Financial Stability ◽  
Negative Impact ◽  
Fiscal Rules ◽  
Finance Management ◽  
Foreign Countries ◽  
Budget Policy ◽  
The Government ◽  
Supranational Regulation ◽  
The Eu

The issue of using fiscal rules in budget policy implementation is covered (namely, one of the innovative mechanisms aimed at limiting fiscal imbalances and enhancing positive impacts on economic and social development). An analysis of approaches to determining the content of fiscal rules is carried out. The content’s interpretation is proposed, which reflects not only restrictive, but also corrective functions. The IMF recommendations on application of fiscal rules and supranational regulation of budget policy in the framework of integration associations, as well as their positive and negative impact on the development of Member States, were considered. It is noted that fiscal rules should be sufficiently balanced and flexible for their use in public administration. In order to increase the effectiveness of fiscal rules, significant changes have been made in the EU regarding their composition over the past years. The authors reveal the main objectives of application of fiscal rules, as well as their importance in increasing the budgetary responsibility of the government, particularly, to ensure budgetary discipline, as well as the effectiveness of spending funds. Mechanisms for adjusting the fiscal policies that are introduced in framework of fiscal rules are outlined. Particular attention is paid to measures to continue fiscal consolidation, as well as to support economic growth and financial stability. It is concluded that strengthening rigidity of fiscal rules at the supranational level in the EU hampered flexibility in managing budget resources, hence they require reform. With the use of fiscal rules, the issues of amending the institutional structure of public finance management and deepening the transparency of budget operations have been actualized. It is noted that changes to application of fiscal rules are important enough for Ukraine. The rules used in our state are insufficient and do not fully solve the tasks assigned to them. They require expansion and improvement, as well as introduction of effective implementation mechanisms. To improve the effectiveness of fiscal policy in Ukraine, one should take into account the experience of foreign countries, as well as develop and implement more detailed and flexible fiscal rules.

scholarly journals Fiscal Response to Terrorism in Pakistan: The Role of Institutions

2021 ◽  
Vol 5 (1) ◽  
pp. 154-192
Author(s):  
Tahir Mukhtar ◽  
Zainab Jehan
Keyword(s):  
Fiscal Policy ◽  
Time Series Data ◽  
Institutional Quality ◽  
Jel Classification ◽  
Defense Spending ◽  
Series Data ◽  
Tax Revenue ◽  
The Government ◽  
The Impact

This study empirically estimates the fiscal consequences of terrorism in Pakistan by using annual time series data from 1984 to 2016. By employing the autoregressive distributed lag (ARDL) technique, the study has gauged the impact of terrorist incidents on two important facets of fiscal policy, namely, tax revenue and defense spending. The results reveal that terrorism has detrimental ramifications for fiscal policy in Pakistan. Specifically, on the one hand, an increase in terrorist incidents tends to bring a fall in tax revenue while on the other hand, they induce a rise in defense outlays, thus deteriorating both fronts of the fiscal position. Notably, the moderating role of institutional quality appears significant and indicates that institutional quality has not only a significant direct impact on fiscal policy, but it also helps in completely mitigating (reducing) the harmful impact of terrorism on defense spending (tax revenue) in Pakistan. These findings suggest that there is a need to take appropriate steps for strengthening institutional setup to control the fallouts of terrorism on fiscal behavior of the government of Pakistan. Keywords: Terrorism; Tax Revenue; Institutional Quality; ARDL JEL Classification: E62; H2; E02; H5; F35

scholarly journals Fiscal Rules for Natural Disaster- and Climate Change-Prone Small States

2021 ◽  
Vol 13 (6) ◽  
pp. 3135
Author(s):  
Ryota Nakatani
Keyword(s):  
Climate Change ◽  
Fiscal Policy ◽  
Natural Disasters ◽  
Natural Disaster ◽  
Fiscal Sustainability ◽  
Fiscal Rules ◽  
Policy Framework ◽  
Small States ◽  
Rule Based ◽  
Fiscal Rule

How should small states formulate a countercyclical fiscal policy to achieve economic stability and fiscal sustainability when they are prone to natural disasters, climate change, commodity price changes, and uncertain donor grants? We study how natural disasters and climate change affect long-term debt dynamics, and we propose cutting-edge fiscal policy rules. We find the primacy of a recurrent expenditure rule based on non-resource and non-grant revenue, interdependently determined by government debt and budget balance targets with expected disaster shocks. This innovative fiscal rule is classified as a natural disaster-resilient fiscal rule, which comprises a plethora of new advantages compared to existing fiscal rules. This new type of fiscal rule can be called as the third-generation fiscal rule. It encompasses natural disasters and climate change, uses budget data only, avoids the need for escape clauses, and operates on a timely basis. Our rule-based fiscal policy framework is practically applicable for many developing countries facing an increasing frequency and impact of devastating natural hazards, and climatic change.

scholarly journals Fiscal sustainability and public debt in an endogenous growth model

2008 ◽  
Vol 9 (2) ◽  
pp. 277-302 ◽  
Author(s):  
JESÚS FERNÁNDEZ-HUERTAS MORAGA ◽  
JEAN-PIERRE VIDAL
Keyword(s):  
Fiscal Policy ◽  
Endogenous Growth ◽  
Public Debt ◽  
Overlapping Generations ◽  
Fiscal Sustainability ◽  
Fiscal Rules ◽  
Human Capital Formation ◽  
Fiscal Adjustment ◽  
Educational Spending ◽  
Endogenous Growth Model

AbstractThis paper investigates fiscal sustainability in an overlapping generations economy with endogenous growth coming from human capital formation through educational spending. We assess how budgetary imbalances affect economic dynamics and the outlook for economic growth, thereby providing a rationale for fiscal rules ensuring sustainability. Our results show that the appropriate response of fiscal policy to temporary shocks is not trivial in the absence of fiscal rules. Fiscal rules allow for a timely reaction, thereby avoiding possibly disruptive fiscal adjustment in the future: the more adjustment is delayed, the larger its necessary scale is. We perform a rough calibration of the model to simulate the effects of a demographic shock (change in the population growth rate) under different fiscal policy scenarios.

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