The role of automatic stabilizers in business cycle: the case of indonesia

TThe use of large fiscal stimulus packages to dampen the impact of Covid-19 recently has raised concerns about the effectiveness of the discretionary fiscal policy. This paper aims at analysing the feasibility of automatic fiscal stabilisers to mitigate economic fluctuations in the case of Indonesia. Using the IMF standard model for quarterly data over the period of 2001(1) to 2019(4), we find that the role of automatic fiscal stabilisers is getting greater both in revenue and spending. This implies that the automatic fiscal stabilisers are feasible as the main fiscal policy instrument for economic stability goals in the future. However, given the existing circumstances, Indonesia has to reform economic, regulatory, and institutional ecosystems in adopting the automatic fiscal stabilisers.

The impact of the COVID-19 pandemic on poverty and inequality in Mexico

The objective is to quantify the effect of the COVID-19 pandemic on employment, poverty and inequality in Mexico. The methodology is based on a probit model to identify individuals at risk of employment loss, whose earnings are set to zero in ENIGH 2018 to match changes in employment and earnings observed in between December 2019 and the May 2020 according to ENOE and ETOE surveys, respectively. MEXMOD, Mexico’s microsimulation model, is used to simulate tax-benefit policies based on the pre-COVID and COVID-scenarios. The results show that there was a loss of 12.1 million jobs. Poverty reached 60.16% and extreme poverty reached 29.73%; inequality grew 8.2%. It is recommended to strengthen social policy with extra funding (taxing the rich) to achieve greater redistribution. The limitation is that income distribution is held constant as we do not have ENIGH 2020. The originality is to offer timely measures of poverty and inequality using microsimulation techniques to overcome the lack of data during the pandemic. The research concludes that there are not automatic stabilizers to cope COVID-19 negative effects and cash-transfers are not sufficient to do so.

Cross-Region Transfer Multipliers in a Monetary Union: Evidence from Social Security and Stimulus Payments

US federal transfers to individuals are large, countercyclical, vary geographically, and are often credited with helping to stabilize regional economies. This paper estimates the short-run effects of these transfers using plausibly exogenous regional variation in temporary stimulus payments and permanent Social Security benefit increases. States that received larger transfers tended to grow faster contemporaneously, with a multiplier of around 1.5 for permanent transfers and 1/3 for temporary transfers. Results are broadly consistent with an open-economy New Keynesian model. At business cycle frequencies, cross-region transfer multipliers are not large, suggesting only modest gains in regional stabilization from US federal automatic stabilizers. (JEL E12, E32, E62, H23, H55, R12)

Discretionary fiscal spending needs to be raised further by allocating more towards MGNREGA

The broad areas covered in the attached article are: * Introduction:1) Rationale behind increasing MGNREGA spending: India’s fiscal deficit as a proportion of the GDP has increased till 11 September, 2020 as a result of more of automatic stabilizers in comparison to discretionary policy action, and also due to more indirect (“below the line” measures) instead of direct fiscal response;2) “Above the line” versus “below the line measures” of fiscal response in India and how MGNREGA comes as relief through discretionary spending;3) MGNREGA work provided being less than what is needed in a lockdown induced economy where people have lost their jobs;4) Revision of MGNREGA wages as part of lockdown relief is a mere eye-wash;* Approved Labour Budget and Work actually generated: Data pertaining to these indicators from ‘At a glance’ section and MIS reports show that the work that has been generated is much less than what is needed. MGNREGA trackers by Peoples' Action for Employment Guarantee (PAEG) highlight how individual’s persondays demanded are hidden easily in the MIS data, thus failing to give the real picture. Even the registration of data in MIS is allegedly fraught with data suppression.* Employment of the last resort for the marginalized: There has been a declining trend of work generated for SCs (in total persondays of work) over the last 6 years while for STs it has remained almost constant. Women are facing a fall in their share in the total persondays of MGNREGA work generated in 2020-21.* Average days of work provided by MGNREGA per household is less than half of the sanctioned 100 days. This has been one of the major criticisms of MGNREGA;* Total number of individuals working under MGNREGA has seen an increasing trend (almost) over the past 6 years;* Average wage under MGNREGA is updated every year to adjust for inflation but is delinked from minimum wages;* The number of Gram Panchayats incurring no expenditure has reduced significantly over the past 6 years;* Share of Category A, Category B works and agriculture and allied activities: Various types of work done under MGNREGA is discussed.

The Shock, the Recovery, and Economic Voting Before and After the Crisis

How did the GFC influence support for political incumbents? This chapter argues that an understanding of voter response to adverse shocks requires an examination of both the depth of the shock and the competence of the policymakers’ response over the course of the recovery. Examining CSES post-election surveys of twenty-three OECD countries from 1990 to 2016, this chapter shows that, in line with the conventional economic voting argument, adverse economic conditions during the crisis negatively affect incumbent support. Supporting claims about the importance of time, we find that the effectiveness of such policy efforts depend on the stages of the crisis. The economy–incumbent link strengthened during the recovery. Results also show that the degree to which macro-economic performance influences voters’ punishment of incumbent government depends on governing parties’ policy behaviour and rhetorical messages. Larger amounts of discretionary spending mitigate the negative impact of the crisis on incumbent support. By contrast, automatic stabilizers and pro-welfare pledges have a negative or little impact. If the recovery is slow in long term, no welfare policy or political pledges can prevent voters from punishing incumbent party for poor economic performance.

Automatic Stabilizers in a Low-Rate Environment

In a world where monetary policy cannot assume responsibility for stabilization policy, there is a strong need for fiscal policy to address stabilization issues. In this context, we argue for “semi-automatic stabilizers,” aimed at reducing unemployment slumps rather than output recessions. We show that the hole left by the limits on monetary policy implies a large role for fiscal policy in general and for semi-automatic stabilizers in particular. Finally, we argue that the design of stabilizers, whether they focus on mechanisms that rely primarily on income or on intertemporal substitution effects, depends crucially on the general design of discretionary policy.

Synthetic MMT: Old Line Keynesianism with an Expansionary Twist

Expansionary macroeconomic policy with a strong redistributive component is an attractive proposition, most recently launched on the basis of Modern Monetary Theory or MMT. The Theory is a synthesis of familiar ideas, newly relevant but scarcely path-breaking. Its basics – Chartalist or fiat money, functional finance, and models based on consistent national accounting – come straight from Maynard Keynes, Abba Lerner, and Wynne Godley. Functional finance is the heart of fiscalist Keynesianism built upon automatic stabilizers for the business cycle. MMT’s job guarantee proposal is one more stabilizer which could be a modest helpful supplement to the system which exists. National accounting comparisons of a possible MMT package with the 2008 crash and the Trump tax cut are presented with emphasis on autonomous shifts in demand. The package could have problems with debt sustainability and external balance. Inflation is unlikely if wage repression in the USA is not reversed. But strong wage increases are presumably a goal of MMT.