Does the twin deficit hypothesis hold in the OECD countries under different real interest rate regimes?

This paper explores the validity of the twin deficit hypothesis in selected 25 OECD countries with annual data for 2005–2016 by considering different real interest rate regimes. A non-dynamic panel threshold model, introduced by Hansen (1999), is employed. The novelty of the empirical findings from the present study is that there exists a non-linear relationship between the budget deficit and the trade balance, which is driven by a critical threshold level in the real interest rates. The findings suggest that twin deficit hypothesis holds only under the low real interest rate regime, that is, rises in budget deficits lead to deteriorations in the trade balance when the real interest rate is below the threshold level. When the high real interest rate (i.e. above-the-threshold) regime is concerned, increasing budget deficits give rise to improvements in the trade balance, a finding consistent with the twin divergence hypothesis. Thus, the effect on the trade balance of an expansionary fiscal policy that worsens the budget balance reverses substantially depending on the threshold level of the real interest rates. The major policy implication of this paper is that the policy makers in the selected OECD countries should pay a greater attention to fiscal discipline in order to prevent the trade balance from worsening, because the majority of the countries fall into the low real interest rate regime over the recent years of the sample period (i.e. between 2010 and 2016).     

The sustainability of Australia's current account deficits—A reappraisal after the global financial crisis

The heated debate over the sustainability of Australia's high current account deficit that raged over most of the fixed and floating exchange period was due to the failure of policymakers to shift from the Keynesian Mundell Fleming (KMF) paradigm which has been rendered obsolete by the floating of the Australian in 1983q4 to the Intertemporal Optimization (ITO) paradigm which was more appropriate under the floating exchange rate as advocated by a number of Australian economists in the Pitchford thesis. The Pitchford thesis contended that after the floating of the exchange rate the current account deficit was the residual outcome of rational optimizing decisions of private agents and if there was fiscal balance then the policy of targeting the reduction of the current account deficit based on the KMF paradigm was misconceived. Empirical tests based on the application of the net present value criterion using vector autoregressions, unit root and cointegration econometrics reveals that Australia's current account deficit revealed that the current account deficits were unsustainable during the fixed exchange period and over the whole study period 1960q3–2007q4, but not during the floating exchange rate period post-1983q4. Therefore the empirical results gave credibility to the Pitchford thesis but Australian policymakers continued to target the reduction of the current account deficit because their failure to make the paradigm shift from KMF to ITO to be consistent with the regime shift from a fixed to a floating exchange rate. However, in 2004 after more than two decades feuding Australian policymakers accepted the Pitchford thesis and abandon the policy of targeting the reduction of the current account deficit. But the global financial crisis and global recession has delivered a death blow to the Pitchford thesis by undermining the key assumptions of fiscal balance and rationality that underpins it. The fiscal stimulus package that has been implemented to combat the fall in aggregate demand and restore consumer confidence due to the global recession has resulted in massive fiscal imbalance and the credit crunch has undermined rational behavior and consumer confidence. Therefore, the Pitchford thesis no longer rules the policy roost after the global financial crisis. In this study we draw on the conflicting policy perspectives on the unsustainability of high US current account deficits that tender a malign prognosis based on Salvatore's twin deficit hypothesis and a benign prognosis based on Bernanke's global savings glut hypothesis to identify some key policy challenges that confront Australian policymakers to navigate the Australian economy out of the global financial crisis and recession into a robust recovery phase in the near future.     

中美贸易差额的真相——基于货物贸易、服务贸易及FDI综合视角的分析

文章分析现行货物贸易、服务贸易统计体系缺陷对中美贸易差额统计的影响,揭示了中美贸易差额被夸大的真相.在货物贸易分析部分,采用格兰杰因果检验方法,验证了FDI对现行贸易统计体系下中美贸易进出口额的扭曲,现行的原产地统计规则夸大了中国对美国的货物出口额,在服务贸易分析部分,着重分析由于服务业FDI的普遍存在以及统计技术原因造成服务贸易统计部分数据遗漏.基于货物贸易、服务贸易和FDI综合视角的贸易差额才能反映中美贸易的真实情况.     

Sudden stop and trade balance reversal after Asian crisis: Investment drought impact versus exchange rate depreciation

After the Asian crisis in 1997, the respective trade balances of Indonesia, Korea, Malaysia, and Thailand reversed suddenly from deficit to surplus. By particularly addressing the sudden cessation of investment caused by the financial crisis, it is demonstrated that the IS balance adjustment dominates real exchange rate depreciation, indicating that to reform the large external imbalance of Asian countries, which is a major component of global imbalance, policymakers should target domestic absorption. Furthermore, it can be demonstrated that the large trade balance surplus of Asian countries will decrease along with recovery. Finally, policy implications related to the recent Euro crisis are provided.     

Debt, deficits and the dollar

This paper examines the relationship between the budget deficit and the trade deficit in the United States by presenting new evidence on the impact effects of debt disturbances on the exchange rate. Based upon estimates of a general two-country portfolio-balance model, we find evidence that increases in the U.S. debt stock have caused an appreciation in the U.S. dollar relative to the German mark and the Canadian dollar over the period 1973II–1987II. Correspondingly, this paper presents evidence on the linkage between the budget deficit and the trade deficit arising through the exchange rate.     

Fiscal deficits under financial pressure and insolvency: Evidence for Italy,Greece and Spain

This article attempts to re-evaluate the sustainability of the fiscal deficit as well as the long-run macroeconomic relationship between government spending and revenues for three South-European economies under financial market pressure and insolvency; Italy, Greece and Spain. The empirical analysis uses annual data from 1970 to 2010 and employs various cointegration techniques to account for possible linear and nonlinear effects in fiscal policy actions. The evidence for all three countries suggests that, allowing for structural break, (i) the fiscal deficits are weakly sustainable in the long-run, (ii) the spend-and-tax hypothesis is supported and (iii) the budgetary adjustment process is asymmetric in Italy and Spain.     

Economic liberalization in Egypt: A way to reduce the shadow economy?

This study examines the relationship between economic liberalization and the size of the shadow economy in Egypt. We use annual data from 1976 to 2013 and show that economic liberalization policies in Egypt have a statistically significant decreasing effect on the size of the shadow economy as a percent of Gross Domestic Product (GDP). This effect is confirmed for both short- and long-term oriented economic liberalization policies. Based on our results, policies which promote trade and economic liberalization can reduce the extension of the shadow economy in Egypt. Therefore, we suggest conditioning international development assistance to Egypt on demonstrable policy actions with respect to economic liberalization.     

Causes and impacts of the mis-representation of agricultural policy—The case of food supply security payments in Switzerland

Although the supply situation of the Swiss population is sufficient in terms of food security, contributions to security of food supply have been made since 2014 as part of the country’s current agricultural policy. Amounting to around CHF 1.17 billion, such contributions account for more than a third of Switzerland’s total direct payments budget. The effectiveness and the efficiency of this policy in terms of both calorie production and income transfer were analysed. With the help of an agent-based model approach, the extent to which the achievement of targets is guaranteed in the long term was examined. Possible gains in efficiency become visible alongside a stepwise reduction in the levels of the contributions. If the current policy is continued, Switzerland will barely achieve its actual operationalised calorie production targets. A focus on demand during times of supply shortages and a stronger focus on maintaining production factors could release the resources necessary to close existing gaps in relation to meeting targets. With an income ratio of about 0.3, the payments have a high income transfer effect and, therefore, make a major contribution to securing agricultural income. This fact is not evident in either the formulation of targets or the labelling of the policy. The present study contributes to the discussion concerning the possible reasons and likely impacts for the mislabelling of this policy measure.     

The impact of de-globalization on China’s economic transformation: Evidence from manufacturing export

The economic transformation is an important policy practice of economic development in China. In the context of “deglobalization”, it is critically important to better understand the impacts of increasing trade costs on China’s economic transformation from the perspective of firms’ exports. In this study, we measure the trade costs of specific manufacturing sectors and provinces. We employ Heckman (1979) two-stage method and the data from China’s manufacturing firms to investigate the impacts of trade costs on heterogeneous firms’ exports. Based on these results, we further explore the impacts of trade costs on China’s economic transformation and discuss policy advisories. Our results indicate that the increase in trade costs have adverse impacts on China’s economic transformation. Specifically, increasing trade costs hinder firms’ export behaviors and export scales. However, these impacts are heterogeneous on different types of firms, which refers to the ownership reforms, manufacturing sector upgrades and coordinated regional development. In particular, increasing trade costs do not affect coordinated regional development in China, but they are not conducive to ownership reforms and manufacturing sector upgrades. Altogether, our findings provide the first evidence on the impacts of trade costs on China’s economic transformation from the perspective of firms’ exports, and also shed light on policy implications for promoting firms’ exports and economic transformation in the “deglobalization” period.     

Alternate adjustments to external shocks in Hungary

A multisector computable general equilibrium model is used to evaluate Hungary's response to the external price shocks in the 1970s. The model incorporates characteristics of Hungary's reformed socialist economy. The results show that although the deterioration in terms of trade was important, the policies of insulation of the economy and increases in investment had a much larger detrimental impact on the trade balance. The existence of planned CMEA trade reduced the effects of the price shocks on the trade deficit. Export promotion by means of higher export subsidies would not have been effective to reduce the trade deficit in Hungary.     

The sovereign crisis and Italy’s potential output

We evaluate the effects of the European sovereign crisis on Italian potential output (natural output, in the absence of nominal rigidities) by simulating a New Keynesian model. Our results are as follows. First, the 2011–2013 recession subtracted 1.6 percentage points from potential output growth and widened the output gap. Second, the 2013 reforms limited the reduction in output capacity to 1.4 points and enhanced long-run growth by 3. Third, once a balanced budget is achieved in the medium term, reductions in either labor or capital income taxes would boost potential output growth by 0.2 points per year.     

When can fiscal consolidation be expansionary? Evidence from a small open economy

The paper focuses on the implications of stabilisation policies in a small open economy that were introduced to reverse burgeoning public sector deficit. In particular, I examine the hypothesis that such stabilisation policies can actually have expansionary effects on business investment. While this goes against the standard Keynesian view that the institution of more conservative fiscal and monetary programmes will, at least initially, lead to deflationary outcomes, there are important reasons for believing that such policies will in fact be expansionary. Such predictions are made in a dynamic setting, which weighs the short-term consequences of curtailed government expenditures against their long run implications for future increases in government spending, a reduction in debt burdens and greater stability. With the introduction of expectations, the positive implications of such policies can be immediate. This paper tries to clarify the ‘expectational crowding-in’ process and investigates whether the effects of stabilisation on business investment were due to that process or to other features of the stabilisation programmes. The policy message from my analysis is that budget consolidations producing expansionary effects are more than a theoretical construction. The experience of small open economies mentioned above should be taken into account also in policy making. Empirical findings indicate that EMU countries may need to carry out budgetary consolidations to dispose of room for manoeuvre against first the fiscal constraints in smoothing the business cycle imposed by the Stability Pact, and second, the looming budgetary implications of ageing populations.     

越南经济金融状况分析及展望

2008年是越南经济动荡的一年。通货膨胀和贸易赤字激增,随后发生逆转;经济增长放缓,预计2009年将进一步缓和,2010年将开始回升。预计这两年通货膨胀将相对较低,经常账户赤字预计在2009年有所扩大而在2010年将缩小。主要的短期挑战来自于限制经济增长减缓的同时,保持财政和经常账户赤字处于可控之中。从中期来看,政府需在加速推动增长同时又不能引发通货膨胀和使经常账户赤字扩大。     

Fiscal stringency and fiscal sustainability: Panel evidence from the American state and local governments

Most state (and local) governments in the U.S. operate under formal fiscal rules which limit their ability to run budget deficits and resort to debt financing. A priori, one would expect to find evidence in favor of an intertemporally balanced budget, or fiscal sustainability, for these states, especially those characterized by a relatively high degree of fiscal stringency. We test this hypothesis for a panel of 47 state–local government units (1961–2006) using four budget balance definitions and several subsamples defined based on regional classifications, or presence of certain balanced budget requirements (BBRs). Our results, obtained from panel estimation techniques that allow for general forms of serial and cross-sectional dependence, suggest that a sufficient condition for “strong” sustainability is consistently satisfied for the full sample and all subsamples in relation to balances that include special funds and/or federal grants. However, we find evidence consistent with the “weak” version of sustainability for the full sample and some regional subsamples (particularly Far West dominated by California) in at least one of the two balances that exclude these items. Finally, the BBRs seem to matter only in relation to the sustainability of the more narrowly defined balances. We discuss the implications of these findings for the role of fiscal rules and federal grant policies.     

A Realistic Path to Implementing China’s Budget Law

The core issue for the implementation of modern budget law is to optimize the satisfaction of society’s demand for public goods. The form of implementation mechanism that will best achieve this goal has thus become a major topic in the field of legal research. To go beyond the Anglo-Saxon budget model and construct a realistic path for the implementation of China’s budget law, this issue needs to be explored from the perspective of Chinese citizens in a way that safeguards the fundamental interests of the people and is premised on upholding and improving the People’s Congress system, so as to achieve a balance between internal and external budget allocation relationships. There are three routes to implementing China’s budget law: the political, the social, and the judicial. Under the first, citizens’ political identity interests are represented by deputies who oversee the budgetary powers of administrative bodies through the People’s Congress. Under the second, citizens individually or collectively participate, influence or even decide the allocation of public economic resources through dialogue, negotiation, reasoning and argument with the responsible budgetary agency in the course of the budget’s compilation, examination and approval, execution and supervision. Under the third, the establishment of a system for budgetary litigation allows citizens to participate in and supervise the implementation of the budget law, individually or collectively. This provides judicial security for the law’s implementation. These three realistic implementation routes represent the dialectical unity of concerted institutional effort aimed directly at effective implementation of budget law. Judicial interpretations of budget law implementation indicate the importance and urgency of promoting national governance capacity through reform of the legal systems governing finance and taxation. This explains the significant role of finance and taxation law in national governance.     

R&D in a post centrally-planned economy: The macroeconomic effects in Poland

Half a century of centrally planned policy in the Central and Eastern European countries resulted in outdated technologies, inefficient allocation of resources and low productivity. Following the end of communism there was a fifteen year process of transition which ended in 2004 with eight post-communist countries joining the European Union (EU) of which Poland was the largest. As part of the EU these countries now face the challenge of the common EU strategy Europe 2020, which has set the target of achieving R&D expenditure to GDP ratio (called the R&D intensity) of 3% by 2020 for the Union as a whole in an effort to increase the competitiveness of the region. Poland, like the other post-communist countries, faces a lower target of R&D intensity, set at 1.7%. Nevertheless, the challenge is immense, since the country is still at only half that level and has little experience in developing policies to help achieve it. In this paper we tested two possible policy options to achieve the target: (1) to increase government expenditures on R&D and; (2) to provide tax relief on R&D to businesses. The method applied to assess the options is a recursive dynamic computable general equilibrium (CGE) model for Poland with an explicit link between productivity and R&D stock. The results show that achieving the R&D intensity target via the use of tax relief is 2.5 times more costly to the government budget, but it has a greater impact on the economy in terms of a higher GDP growth. Tax relief proved efficient in the short run while in the long run the government expenditure policy provides better value for money.     

经济安全视角下日本外资管理政策变化分析CSSCI

从运用经济力维护国家安全的经济安全视角来看,外国直接投资所具有的直接、间接经济力与国家安全之间有密切的关系,世界各国都非常重视对外资的管理。长期以来,放松规制是日本外资管理政策的主基调,但是近年来,从经济安全视角出发,为了防止重要技术外泄等,日本政府在2007年、2017年和2019年进行的相关制度调整呈现出不断加强外资管理的迹象。这一方面是受到国际秩序变化、国际社会对军民两用技术重视度增强以及国际上外资管理趋强等因素的影响;另一方面,也更为重要的是,在当前形势下日本初步形成了经济安全战略思想。当前日本实施外资管理政策面临如何解决好外国直接投资引进与管控之间、维护经济安全的技术政策与坚.持自由贸易原则之间的平衡等问题,这些问题的解决路径蕴含着日本外资管理政策变化的趋势。     

浅析印尼对外商投资的法律规制

印度尼西亚与贸易有关的法律主要包括《海关法》、《政府投资条例》以及新修订的《投资法》等。印尼的投资环境受到传统观念、政局的稳定性、军警社会化以及公职人员腐败等因素的影响。在目前印尼社会背景下,我国应把握好其政治转型过程中对我国政策的变化,关注对华人政策的变化以及充分利用好国际贸易规则与国内法律,加强重点领域的贸易,以促进中印（尼）之间的贸易与投资。     

Explaining Different Paths in Social Health Insurance Countries – Health System Change and Cross‐border Lesson‐drawing between Germany,Austria and the Netherlands

The issues of ‘policy diffusion’ or ‘policy transfer’ and ‘mutual learning’ have become important topics in comparative research on social policy and health systems. In current debates on explaining reform in ‘Bismarckian’ social (health) insurance systems, however, these issues have been neglected. In particular, the role of ‘negative lesson‐drawing’ in the sense of avoiding mistakes of others has not often been considered. This article compares health system change in Germany, Austria and the Netherlands, three countries with health systems of the social insurance type. In contrast to the existing literature, our analysis stresses that these countries have taken different reform paths since the 1990s. By applying a most similar systems design, we analyze how far cross‐border lesson‐drawing has contributed to health system divergence in the three countries. The empirical basis of the analysis is semi‐structured qualitative expert interviews, a method appropriate for tracing processes of lesson‐drawing. We argue that in order to fully understand the diverging reform trajectories, we need to take into account how political decision‐makers refer to (negative) experiences of other countries. Generally, national driving forces for health system change were at the heart of many crucial reforms during the period studied. Nevertheless, we claim that it was the German bad practice role model that kept the reform paths of Austria and Germany apart in the Austrian health reform discussion between 2000 and 2005.