New fiscal law aims to clean up Panama’s reputation

Significance This marks another step towards Panama’s long-standing aim of strengthening its fiscal framework and countering its reputation as a tax haven. While the law will bring some improvements, much of Panama’s fiscal framework remains opaque. This will continue to pose reputational risks for investors and financiers. Impacts The fiscal reform will have knock-on effects for businesses in terms of updating taxation and regulatory procedures. Ongoing analysis of the Pandora Papers could reveal further links to Panama’s corporate financing and, potentially, public figures. A push to improve fiscal transparency could hit financial sector revenues in the short term, as investors move to other jurisdictions.

EU fiscal reform will be modest at best

Significance Member states will start to negotiate possible reform of the fiscal rules in October, aiming for agreement by March. The outcome will be vital for spending and tax policy across the euro-area over the coming years. Impacts Pressure will grow on hawkish member states to exempt areas relating to the green and digital transitions from strict spending rules. Premature fiscal tightening would likely result in political instability in Spain and Italy. Soaring prices could trigger social unrest and put pressure on governments to cut certain taxes.

Discontent around Colombia fiscal reform will simmer

Headline COLOMBIA: Discontent around fiscal reform will simmer

German polls bode negatively for EU fiscal reform

Headline GERMANY/EU: Polls bode negatively for fiscal loosening

Colombia unrest offers no quick solutions

Significance Large demonstrations on May 28 resulted in several deaths in Cali; President Ivan Duque deployed troops there the next day. Although that appears, temporarily, to have restored some order, talks between the government and protest leaders have stalled. Impacts The government still plans fiscal reform of some kind, but any proposals now risk inflaming unrest. Prolonged accusations of human rights abuses and impunity could damage Colombia’s international reputation. Fear of socialism and Venezuela’s struggles offer the government a powerful electoral weapon against the left.

Public Deficits in USMCA Economies During the COVID-19 Economic Crisis

This paper aims to evaluate the fiscal policy implemented by the USMCA economies to deal with the COVID-19 economic crisis. We estimate the economic capacity (potential output) and the Cyclical Primary Balance as a percentage of GDP (CPB) of each of the scrutinized economies. Then we obtain the Cyclical Adjusted Primary Balance as a percentage of GDP (CAPB) as the difference between the Primary Balance (PB) and the CPB. Unlike previous CPB estimations, we obtain the potential output reference as the Economic Capacity methodology (Shaikh and Moudud, 2004), which overcome some alternative methodologies problems. According to our empirical analysis, an asymmetric fiscal policy stands across USMCA economies. Canada and the United States are using a countercyclical fiscal policy, while Mexico uses a procyclical one. Mexico should abandon its current fiscal policy, implement an alternative to support households and firms during crisis periods, and execute a progressive fiscal reform. Our paper's limitation is that we use PB and not its components to estimate the CPB; however, we use a more extended time series, contributing to obtaining more robust results.

Ambitious fiscal reform faces obstacles in Colombia

Significance The plans, presented to Congress on April 15, aim to increase tax revenues by an unprecedented COP23.4tn (USD6.4bn) and make permanent a basic income programme started during the COVID-19 pandemic. Such moves would help fill the fiscal hole created during the pandemic and strengthen the social safety net. However, their advancement will be difficult. Impacts Failure to pass fiscal reform, or the passing of a watered-down bill, would damage Colombia’s credibility with international investors. Ongoing pandemic challenges and lockdowns will see firms and households require support well into 2021. A permanent basic income for poor households would be an important step towards a more progressive social policy.

EU recovery fund will be vital for fiscal reform

Significance Reform is needed if hard-hit, highly indebted countries are to pursue pro-growth policies over the coming years. The extent of reform will depend on a number of factors, especially the formation of the next German government and the impact of the Next Generation EU (NGEU) recovery fund. Impacts Without more ambitious fiscal stimulus, Europe’s recovery will lag behind other developed regions. Future efforts to enhance EU fiscal powers and integration would likely face legal challenges from Germany’s constitutional court. Effective use of the EU’s recovery fund may force Eurosceptic parties in southern Europe to moderate their positions.

EU fiscal reform hinges on southern performance

Headline EU: Fiscal reform hinges on southern performance

The Impacts of Flattening Fiscal Reform on Health Expenditure in China

Introduction: A number of provinces have implemented a fiscal reform of flattening government since the first decade of this century in China. This study aims to quantitatively analyze the influences of this government fiscal reform on county-level health expenditure. We also bring forward policy suggestions for improving county-level fiscal system and healthcare delivery.Methods: We collected a novel longitudinal county-level data from 2003 to 2010, including counties' socioeconomic data, fiscal revenue, and health expenditure. Jilin Province, Hebei Province, and Anhui Province were selected as representative samples for this policy evaluation. The study employed a time-varying difference-in-difference model specification to investigate the impacts of flattening fiscal reform on health expenditure.Results: The analyses find that the fiscal system reforms of the three provinces have a significantly positive impact on the health expenditure of county-level governments. However, we find no policy effects on the proportion of health expenditure to fiscal expenditure of county-level governments. The estimation results are robust after controlling several background variables.Conclusion: The results yield important policy insights that public finance and its reform significantly impacts health expenditures in China. The government may still need to strengthen the transfer payment system to guarantee the social welfare provision in healthcare.