Fiscal sustainability and low interest rates: what an indicator can(’t) tell

The indicator that is commonly used to assess the long-term fiscal sustainability of public finances in EU member states (“S2”) is also defined if government borrowing rates are assumed to be permanently lower than the growth rate of GDP. Under these circumstances, however, it no longer provides a reliable orientation for fiscal policy. I illustrate these findings based on simulations prepared for the Fifth Sustainability Report published by the German Federal Ministry of Finance. In addition, I discuss the interpretation of the indicator in a low-interest environment and the assumption that relevant interest rates may continue to be low if there are substantial challenges for fiscal sustainability, e.g., through demographic ageing.

Determinants of Tax Compliance Behaviour among Rental Income Earners in Pokhara

Rental tax is an important source of revenue for local government units. After Nepal adopted fiscal federalism, concerns have been shown by policymakers as well as academicians on the fiscal sustainability of the local government units. In this context, this study attempts to explore tax compliance behaviour among rental income owners in Pokhara. The study is based on a survey of 196 households located in wards 9, 11 and 17 of Pokhara Metropolitan City. The wards represent commercial, semi-urban, and densely populated areas of the city respectively. The required data were gathered employing a self-administered questionnaire comprising Likert scales to measure tax awareness, attitude towards tax, cost of non-compliance, peer influence for compliance, government incentives, and tax compliance behavior of the rental income earner. The data collected were analyzed employing ANOVA, correlation and multiple regression. The research revealed a positive relationship between tax awareness, attitude towards tax, peer influence, and government incentives with tax compliances. The study findings depict that the taxpayers’ awareness and perception towards tax are important variables that affect the compliance behavior of rental taxpayers. Moreover, the results reveal that the rental income earner in Pokhara does not comply with the tax rules due to the lower cost of non-compliance as negative relationship established was found between tax compliance and the cost of non-compliance. Metropolitan tax authority needs to focus on awareness and government incentives rather than the cost of non-compliance for better adherence to tax rules among rental taxpayers.

Brazil fiscal and welfare spending demands will clash

Significance The economy is at a crossroads: high unemployment and increasing poverty are generating pressures for greater income transfers, but the delicate fiscal position is generating concern about long-term fiscal sustainability. Rising inflation has generated temporary fiscal relief, but for the coming years fiscal indicators are expected to worsen. Impacts Conflicting pressures between welfare spending and long-term fiscal equilibrium will worsen in coming months. The implementation of ‘populist’ policies for purely political purposes may prove unsustainable. Uncertainty about fiscal issues will contribute to deteriorating perceptions about the future of the economy.

Pacific Economic Monitor December 2021: Reopening and Rebuilding for a Resilient Recovery

This issue of the Pacific Economic Monitor explores how the region can reopen and rebuild. Besides safely resuming travel and protecting health, a resilient recovery will depend on promoting fiscal sustainability and strengthening economic management, including regional cooperation to revitalize tourism.

Does Air Pollution Impact Fiscal Sustainability? Evidence from Chinese Cities

Fiscal sustainability is an issue of great concern for governments globally and air pollution control has become an important factor affecting fiscal sustainability. This study aims to examine the impact of air pollution on fiscal sustainability in the short and long run. We conducted an empirical analysis based on air pollution and local government debt data on China’s prefecture-level cities in 2014–2019, using regression discontinuity design (RDD) and a panel data model. The results show that air pollution reduces the debt burden of governments in the short run. However, in the long run, addressing the negative impacts of air pollution adds to the debt burden of local governments, hindering fiscal sustainability. Fiscal freedom and the level of public services significantly moderate the negative impact of air pollution on fiscal sustainability. A higher level of fiscal freedom generally indicates a greater incentive for local governments to raise pollutant emission standards, strengthen the construction of green infrastructure, and subsidize green enterprises. Furthermore, a higher level of public services reflects better infrastructure and higher levels of investment in environmental protection, which help to reduce the negative impact of air pollution. The governments are suggested to take measures to effectively control air pollution, so as to enhance fiscal stability in the long run.

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

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.