Fiscal consolidation in the euro area: How much pain can structural reforms ease?

The IMF's Global Integrated Monetary and Fiscal model (GIMF) is used to examine the scope for structural reforms in the euro area to offset the negative impact of fiscal consolidation required to put public debt back on a sustainable path. The results suggest that structural reforms in core countries could be expected to offset the near-term negative impact on activity arising from the required fiscal consolidation. However, for the periphery, the results suggest that it would take several years before structural reforms could return the level of output back to its pre-consolidation path.     

Implicit public debt thresholds: An operational proposal

Gauging the public debt-to-GDP ratio a country can sustain in the medium-run without putting fiscal sustainability at risk is a question of key relevance for policy-makers. Deviations from a safe level of debt should be watched over in order to take corrective measures. In this paper we make a proposal for an operational characterization of the “prudent debt level”. To do so, we use standard methods based on Vector Autoregressions to compute the probability that the public debt ratio exceeds a given threshold, using the Spanish case as an example. The resulting probabilities are highly and positively correlated with market risk assessment, measured by the spread with respect to the German bond. Our estimation of the “prudent debt level” is obtained as the debt-to-GDP ratio that maximizes the correlation between the probability of passing a pre-specified debt threshold and the spread. The so-obtained implicit debt threshold or “prudent debt level”, which is consistent with the medium-term debt-to-GDP ratio anchor of 60% of GDP, presents several advantages as a complement to existing DSA toolkits.     

Macroeconomic impact of public debt and foreign aid in Sri Lanka

Accumulation of public debt in Sri Lanka is raised significantly since the independence. It exceeded 100% of gross domestic products (GDP) in the late 1980s and the early 2000s. Although it has been declined in the recent past and becomes 79.3% of GDP in 2016; the high level of debt in a weak fiscal position of the small economy Sri Lanka is an issue of concern. In this backdrop, this paper examines the impact of public debt and foreign aid on income, price level and interest rate in Sri Lanka for the post-reform period. It is found that public debt in general and foreign debt, in particular, depresses income and stimulates price level. Domestic debt has some impact on the price level. On the other hand, foreign aid has a deleterious effect on both the income and price level. The foreign debt and aid have raised interest rate both in the short-run and in the long-run, while no significant impact of the domestic debt on interest rate is found. Based on these findings, the paper elaborates on some long-term measures for reducing the dependence on debt and aid in Sri Lanka.     

Shadow economy,corruption and public debt in Spain

The aim of this paper is to study the relationship between the shadow economy and corruption as determinants of public debt in the Spanish Autonomous Communities. In addition, we construct a Corruption Perception Index for those regions. Our data constitute panel data for the period 2000–2012. The results show that the volume of the shadow economy has a significant and positive impact on regional public debt. Corruption also shows a direct and significant relationship with public debt in the Autonomous Communities, although its impact is lower than that of the shadow economy. We extract some implications for the public authorities.     

Falling real interest rates,rising debt: A free lunch?

Deep systemic financial crises tend to be infrequent events, as they leave deep lasting scars on the psyche of consumers, investors, politicians and regulators. Normally, especially given strengthened regulation and, one would not expect another systemic event for many decades. But the situation today is anything but normal. Record high global public and private debt combined with political paralysis and extraordinarily weak leadership outside central banks make today’s uncharacteristically fragile at this point in the debt supercycle.     

美、日地方政府债务管理及其对我国的启示

地方财政困难和债务危机是当前我国财政领域的一个突出问题,通过分析我国当前地方政府债务管理的现状,详细阐释美国和日本的地方政府债务管理特点和方式,认为我国应该从制度上建立健全完善的地方政府债务管理组织架构、债务预算管理模式和债务信息公开披露制度等。     

The mandatory private pension pillar in Hungary: An obituary

In 1998, the left‐of‐centre government of Hungary carved out a second‐pillar mandatory private pension scheme from the original mono‐pillar public system. Participation in the two‐pillar system was optional for those who were already working, but mandatory for new entrants to the workforce. About 50 per cent of the workforce joined the second pillar voluntarily and another 25 per cent were mandated to do so by law between 1999 and 2010. The second pillar has not improved the financial stability of the social security system. Moreover, the international financial and economic crisis has highlighted the transition costs that are associated with moving, even if only partially, to a system of pre‐funding. In 2010, the conservative government de facto “nationalized” the second pillar, and it is to use part of the accumulated pension capital to reduce Hungary's excessive public debt and annual budget deficit and to compensate for income tax reductions.     

Lebanon's economic reconstruction after the war: A bridge too far?

Since the onset of the Civil War in 1975 Lebanon has experienced burgeoning fiscal deficits and an unsustainable public debt overhang. Much of this arose from the loss of revenues during the period of the Civil War 1975–1990 and attempts to maintain basic public expenditure, while from 1990 to 2006 this reflected post-Taif rebuilding and reconstruction of key infrastructure with limited revenue capacity. Considerable progress from the 1990s had been achieved in rebuilding the shattered economy from both public and private international and domestic sources, but its legacy is a huge public debt and a servicing requirement that currently absorbs alone almost 30 per cent of total government revenue and is the highest in the world on a per capita basis. While the need to reduce this debt to a sustainable level would be daunting enough in itself, Lebanon's fiscal predicament was further compounded by the outbreak of war with Israel during July–August 2006. The consequence of this 34-day war was the devastation of residential property, vital infrastructure, loss of agricultural production, industrial production, exports, environmental damage, the collapse of tourism and a further erosion of the influence and power of the central government. Estimates of the direct and indirect costs for Lebanon of this relatively brief but devastating war conservatively vary from US$ 10–15 billion. The implications of such reconstruction and rebuilding costs for the budget and public debt are potentially calamitous for Lebanon which is already struggling under the weight of debt overhang and its servicing. A key question is whether Lebanon can tackle this enormous task in insolation.This paper explores the background to the fiscal crisis, identifies from available literature the extent, nature and cost of the war damage, analyses the options available to the authorities in rebuilding the economy and highlights key policy issues and measures that will be required if a sustainable economic recovery is to be achieved. Despite its demonstrated and remarkable resilience to past trauma the paper concludes that the fiscal crisis makes it impossible for Lebanon to tackle the reconstruction and rebuilding task on its own and particularly in the wake of the events of summer 2006. The country will require substantial and ongoing financial support from international lenders and donors. The success of these efforts in the case of Lebanon is of particular interest as it could well be a microcosm of possible future outcomes for the region more generally.     

Reforming public debt governance in Turkey to reach debt sustainability

The paper argues that the achievement of sustainability of public debt requiring the fulfillment of solvency and liquidity conditions in countries for which real interest rates are above the real growth rates is challenging and difficult. Since solvency is a rather complex concept and its governance is difficult and delicate, the paper maintains that such countries could try to achieve the sustainability of public debt by delegating the tasks of securing the observance of solvency and liquidity conditions to fiscal councils (FC) that need to be formed as autonomous public institutions with sufficient financial and technical resources. In Turkey FC needs to be assigned the further task of improving policymakers’ incentives to opt for sound government procurement and taxation policies that would lead to the achievement of efficient allocation of resources and elimination of corruption and nepotism in the economy.     

Spillover effects of taxes on government debt: a spatial panel approach

It is claimed that tax policy is neither time- nor space-independent due to cross-border tax base mobility, which induces spillovers. Specifically, fiscal shocks in one country are supposed to have an impact on fiscal policies in other countries. Different types of taxes influence economies differently. This paper addresses the question of their impact on government debt. Within a framework of spatial econometric modeling, we evaluate the impact of capital, labor and consumption taxes on public debt in 34 European countries in 2002–2011, and find strong spatial spillovers. We show that a consumption tax and, to a lesser degree, a capital tax significantly affect the sovereign debt, and that the global relations play a leading role (i.e. dominate the local ones) in shaping fiscal policy.     

Public sector efficiency in the design of a euro-area social benefit scheme

This study examines the importance of public sector efficiency in the design of a euro area-wide social benefit scheme. Our results reveal large-scale inefficiencies in the use of funds allocated to the scheme during the great recession and euro area sovereign debt crisis that followed, with member states wasting on average 34.6% of funds allocated to it. We therefore propose that to ensure the smooth functioning of the scheme, the fiscal union will first of all have to strengthen it at the national level by improving efficiency in the use of funds by governments. We show that this can be achieved by providing a framework for the transfer of the “critical success factors” in the policies implemented by the most efficient administrations. Furthermore, we show how public sector efficiency considerations can help ameliorate the problem of moral hazard associated with a centralized insurance scheme.     

Implicit debt in public‐sector pension plans: An international comparison

Most countries have separate pension plans for public‐sector employees. The future fiscal burden of these plans can be substantial as the government usually is the largest employer, pension promises in the public sector tend to be relatively generous, and future payments have to be paid out directly from government revenues (pay‐as‐you‐go) or by funded plans (pension funds) which tend to be underfunded. The valuation and disclosure of these promises in some countries lacks transparency, which may hide potentially huge fiscal liabilities to be passed on to future generations of workers. In order to arrive at a fair comparison between countries regarding the fiscal burden of their public‐sector pension plans, this article recommends that unfunded pension liabilities should be measured and reported according to a standard approach for reasons of fiscal transparency and better policy‐making. From a sample of Member countries of the Organisation for Economic Co‐operation and Development, the size of the net unfunded liabilities as of the end of 2008 is estimated in fair value terms. This fiscal burden can also be interpreted as the implicit pension debt in fair value terms.     

Student debt and wellbeing: a research agenda

ABSTRACT

With levels of student debt unprecedented and rising in many democracies, growing attention has been given by academics and practitioners to its possible effects for student wellbeing. This article makes three contributions to this debate. First, it offers a critical review of literature that considers the relationship of student debt and wellbeing to open up discussion about the dimensions, limitations and possibilities of the field. Second, the paper points to potential avenues for future research about student debt and wellbeing by considering indicative comments made by New Zealand university students as part of a series of in-depth interviews. Third, the article makes a practical contribution to current debates about the tuition ‘fees free’ policy in New Zealand. We argue that developing a more robust understanding of how student debt affects wellbeing may help to broaden and reinvigorate academic and public debate about student debt.     

The language and techniques of multiyear restructing of sovereign debt: Lessons from the Mexican experience

While many economists assure that the restructing of sovereign external debt is a straightforward matter, there are many practical details that bankers must address in negotiating a deal. The problems are compounded in a multiyear restructing, where a new frame of reference had to be established for the problem of debt restructing, including new concepts for included and excluded debt, various schedule for amortizations, monitoring, and conditionality procedures, and pricing considerations. The end result achieved for Mexico can be used as starting point for other debt restructing discussions, at least from a technical point of view.     

Debt management in a small open economy: A theoretical and an empirical study for Belgium

This article analyzes the effects of debt management and its consequence for the control of base money in a small open economy (Belgium). The study compares the effects obtained from a small theoretical model with the results of a larger empirical model.The theoretical model focuses on the financing of government by money operation, on the bond rate, and on the international reserve of the Central Bank.The empirical model is a medium-term one, including the demand and the supply sectors of the economy and permitting simultaneous analysis of real and financial variables.The effects of an endogeneous or exogenous debt management have been studied by numerical simulation of modification in the public expenditure, the world trade, and the discount rate.     

Developments in and prospects for external debt position and burden of developing countries: The case of Korea

The delay of strong economic recovery by industrialized nations, slowed world export growth, and higher interest rates have worsened the financial situation of a number of developing countries which have relied on external borrowings to sustain current account deficits and protect economic development. Recently, well-publicized concerns over the ability to these countries to repay their considerable debt burden have been raised. To shed light on these concerns, the paper focuses on Korea—one of the heavier debt-holding countries. It describes the process through which Korea has acquired its external debt over the past decade, assesses the trends in its debt burden, and presents prospects for the period 1982–1986. Using the Korean experience, the paper shows that the most common indicators used for evaluating foreign debt burden, such as the long-term service ratio, need to be supplemented by other measurements. In a world economy characterized by short-term debts with variable interest rates, the paper suggests that an important tool in analyzing the external debt burden should be the short-term debt burden.     

Beyond the bubble that is Robodebt: How governments that lose integrity threaten democracy

Robodebt describes the automated process of matching the Australian Taxation Office's income data with social welfare recipients' reports of income to Centrelink. Discrepancies signalling benefit overpayment trigger debt notices. The scheme has been criticised for inaccurate assessment, illegality, shifting the onus of proof of debt onto welfare recipients, poor support and communication, and coercive debt collection. Beyond immediate concerns of citizen harm, Robodebt harms democratic governance. Through persisting with Robodebt, the government is launching a regulatory assault on its own integrity. Two Senate inquiries reveal government endorsing (1) incoherence and inconsistency in public engagement, (2) unsound purposes and processes and (3) disregard for citizens. Such actions destroy trustworthiness. Citizens keep their distance and as a result, cooperation falters. At particular risk is the tax system. Citizens harmed by government turn to alternative authorities for help and opportunity, not always along legitimate pathways. The underground economy provides one such opportunity for fearful welfare recipients.     

The South Australian Housing Trust: A Socioeconomic Case Study in Public Housing

The cost structure of Australian public housing authorities and its implications for the social administrative side of public housing operations is examined through a study of the South Australian Housing Trust. The importance of the pooled debt burden for lowering costs to well below private market levels is indicated. The sales policy is examined and it is argued that the sale of public housing into owner occupation is a major exacerbating factor in the high cost of rental rebating and in unbalancing the social mix among public housing tenants. The implications of the 1978 Commonwealth State Housing Agreement for the South Australian Housing Trust are briefly examined.     

东北国有企业债务重组及财政政策研究

国有企业债务问题是国有企业改革的重大难题。解决东北国有企业债务问题,财政应采取相应政策:对资产的转移、出售给予相应税收优惠政策、强化公共财政职能,调整和改革现行的国有资产财政管理体制、开征消费增值税和社会保障税、加大对东北地区的财政转移支付力度。     

Latin America and the crisis (points for the balance of a decade)

The decade of the 1980s was catastrophic for the countries of Latin America because of profound transformations in the world economy, which started in the 1970s, the wilting of the state development programs that were imposed after World War II, and the collapse of socialism with the incipient transition to market economies. The crisis started because of the erosion of the world economic system as constituted under the Bretton Woods agreement; the drastic drop in the economic growth of market economies; the increased costs of living and the deterioration of the environment; the decrease in industrial capacity; and the emergence of transnationalization of production. In Latin America, the economic models that had been in place without solving underdevelopment became even more obsolete (import substitution, internal trade, and the role of the state). The crisis of socialism and the rapprochement of eastern European countries to western Europe also affected Latin America (e.g., Germany cancelled 30 mine exploration projects in Bolivia due to investments in East Germany). The structural readjustment policies of the International Monetary Fund and the World Bank resulted in currency devaluations, redistribution of government funds, elimination of various subsidies, reduction of public debt and social expenditures, reduction of public employment, and payment of external debt. The result was more inflation (in Bolivia, Brazil, Peru, and Argentina, inflation rates were 683.7%, 157.1%, 100.1%, and 326.2%, respectively, between 1980 and 1986), unemployment, and poverty in the lost decade of the 1980s. After 1982, state expenditures on roads, education, hospitals, and nutrition declined by 40% in Mexico. Even though most countries returned to democracy in the region, this was at the cost of the increased role of the military and the transnationals. The grand parties collapsed and in Venezuela, Mexico, and Colombia authoritarian tendencies survived into the 1970s degrading democracy. The states' socioeconomic regulatory role has to be redefined.