The contribution of tax expenditure in fiscal consolidation in post-crisis economies: a case study of the context in Portugal

In this research, we analyse the use of fiscal expenditure as an instrument of fiscal consolidation policy. Portugal was subject to the financial assistance programme (PAEF) articulated with the IMF, the European Commission and the European Central Bank between 2010 and 2014. The objective is to analyse the evolution of fiscal expenditure in the following four years, after the end of that term programme, that is, between 2015-2018. The outcome is to know if the policy of reducing fiscal expenditure implemented in the years in which the programme was in force (2010-2014), continued into the following four years. We compared this evolution with the evolution of direct expenditure, based on two main axes: economic expenditure and social expenditure. The data collection technique is used through document research, and the data obtained was from information provided by national, European statistical authorities and secondary sources of information. It is concluded that, in the 2014-2018 period, the increase in public revenue, due to the decrease in tax expenditure, did not evolve consistently. In 2014-2018, direct public expenditure did not follow the same pattern as in the previous years of 2011-2014, given the functional equivalence of the two types of expenditure. Finally, to observe the relationship between the level of fiscal consolidation, carried out between the years 2010 and 2018, and the behaviour of tax revenue and expenditure, the Scheffé test was performed on the averages of the variables Total Revenue and Expenditure, and Tax Revenue and Expenditure. This was applied in order to observe if the averages of the variables are significantly relevant for the level of fiscal consolidation or if there are other variables, equally important, that were not taken into account in the study, but that had a preponderant role (such as the economic context). We have to statistically conclude that both the revenue and expenditure averages and the percentage averages are not all equal, as they are, in fact, all different between the groups analysed. In order to clarify if the differences in revenue and expenditure and in the respective percentages are statistically significant or if, on the contrary, they are merely eventual, we previously verified their applicability through the assumptions of normality and homoscedasticity of each of the data sets, using the ANOVA test (Fisher, 1918). We observed that for both the amounts of revenue and expenditure, as well as the percentages, the p-value observed in the ANOVA test was equal to 0.000 (i.e. less than 0.050), implying the rejection of the null hypotheses and the acceptance of the alternative hypotheses, according to which the average values of the amounts of revenue and expenditure, and the average values of the percentages are not all equal. The general conclusion is that there was budget consolidation, but this must have been due to other factors, such as the economic environment, since there is no direct relationship between revenue, fiscal expenditure and budget consolidation in any of the periods studied.

ON THE QUESTION OF INVESTMENT AND FINANCIAL DEVELOPMENT OF THE RUSSIAN ARCTIC REGIONS

In this article, the authors assessed the resource availability, investment opportunities and incomes of the population of the Russian Arctic in the context of the potential development of this territory. The study showed that natural resources are not the main condition for the formation of regional finances. Based on the conducted statistical analysis, it is shown that the regions under study have powerful industrial potential but have a rather low level of investment attractiveness. It was revealed that the current system of social guarantees does not compensate for living conditions in these territories. It is concluded that considering the identified interregional differences and peculiarities will make it possible to develop new solutions and approaches in matters of financial development of the Arctic territories. The authors believe that expanding the powers of regional authorities, reducing budget consolidation and developing mechanisms aimed at forming the institutional foundations of state regulation will help build up additional regional financial resources, eliminate the legal vacuum and develop special mechanisms to stimulate investment processes and attract investment resources for these territories.

Restrukturierung und Insolvenz von Kommunen

This thesis is becoming more important to public treasurers, local politicians and restructuring representatives by the day as it describes a specialized framework for dealing with distressed municipal budgets without necessarily having to rely on further funding. It develops a restructuring framework that revives the economic performance of municipalities by reducing their debt levels without jeopardizing their overall debt financing. The approach does not built on insolvency law. Instead, the framework draws back to the emancipated principles of restructuring law, which are adapted to the specific rules of municipal law for budget consolidation.

BUDGET SURPLUS MANAGEMENT AND FISCAL “FINE TUNING”

The subject of research of this paper is the specifics of forming and managing a budget surplus when providing economic growth for the national economy. The results of analyzing the concepts of a budget balance are presented, and directions for managing a positive balance of the state budget are revealed. The specifics of the macroeconomic politics of a surplus are given, and it is revealed that forming a “new” fiscal regime – surplus regime – requires a radical restructuring of budget management. The general typical features of countries with a long-term period of a budget surplus are revealed: focus on budget consolidation on the expenditure side of the budget and the ensuing complex budget reforms made aft er achieving a surplus. It is discovered that one of the main reasons for supporting a stable surplus budget in a number of the world’s countries is the radical restructuring of economic and financial priorities, which was caused by serious macroeconomic shocks. It is noted that when assessing the possibility of maintaining a budget surplus in specifi c countries, it should be taken into account that unfavorable macroeconomic events such as the financial crisis of 2008 or the global pandemic of COVID-19 in the current year (2020) are of crucial signifi cance for maintaining a surplus. According to the results of a comparative analysis of the dynamics of the level of budget deficit and the rates of economic growth, using the example of Switzerland and Norway for 2009–2019, no direct correlation between these indicators was discovered, and it was concluded that there was a lack of empirical evidence and appropriate theoretical generalizations about the existence of a cause-and-effect relationship between economic growth and the type of balance (deficit, surplus, “zero-based”) of the state budget. The advisability of using the budget surplus to reduce the tax burden and to reduce the level of state debt was assessed.

EU fiscal governance and budget consolidation in Visegrád countries

Budget consolidations in Visegrád countries, which followed European financial and debt crisis, were mainly driven by external factors such as EU fiscal governance. Since the Visegrád countries have accomplished their consolidation effort, it seems topical to study their experience and assess the efficiency of consolidation measures. Involving descriptive statistical analysis, the authors posit that supranational impact on national budgets of Visegrád countries was quite efficient, as all economies concerned have accomplished a relatively sizeable fiscal consolidation. This happened largely due to the fact that the governments did not intend to lose vast amounts of funds from the EU budget. Such an option was quite feasible as a part of possible sanctions related to excessive deficit. The Czech Republic, Hungary, Poland and the Slovak Republic run different consolidations as to scale, structure and measures taken, though one could highlight some similarities. On the one hand, consolidations were to a great extent carried out through the means of indirect taxation, because they have a less distortive nature, given the structural characteristics of countries at issue. On the other hand, the governments refrained from raising direct taxes due to their distortive character. Hungary was the only country, which took some active measures in the field of corporate taxation, and subsequently suffered from drop in tax collection. The Visegrád countries did cut government expenditures, but strived to use the most effective instruments such as curbing employment in public sector. Further, there were some subsidiary factors at place that influenced consolidation pace. For example, three of four Visegrád countries are not members of a currency union, which inter alia contributed to monetizing government debt. At the same time, some measures taken by the countries, were of a quite formal nature. For instance, Hungary totally nationalized pension system in order to increase budget revenues. Nevertheless, all Visegrád countries reached deficit target without any revolutionary changes to main fiscal aggregates, which means that consolidations were at least nominally effective. However, cumulative deficit change was not fully accompanied by lowering debt and was by several times less than cumulative transfers from the EU budget. At the same time the budget consolidations in Visegrád countries could be called efficient as GDP growth rates restored, as did investors’ confidence and exports.

Infrastructure Investment in Europe

Using new estimates of infrastructure investment in Europe, this chapter documents a sharp fall in infrastructure investment activities in recent years, with government investment and investments targeted at transport infrastructure being most affected. The chapter discusses a broad range of reasons for the poor investment performance, including budget consolidation efforts—in particular, at the sub-sovereign level—low commercial returns to investment and, in certain market segments, access to finance constraints. The chapter concludes with a description of the role of the European Investment Bank in stimulating more infrastructure investment through its financing activities, its technical advisory assistance, and its input to regulatory and structural reform in Europe.