FISCAL RULES AND GOVERNMENT BORROWING COSTS: INTERNATIONAL EVIDENCE

We find that the adoption of numerical fiscal rules reduces government borrowing costs in a sample of 101 advanced and developing countries for 1985–2010. We apply a variety of propensity score matching methods to address the self‐selection problem of policy adoption and find strong evidence that fiscal rules have large and significant treatment effects on lowering government borrowing costs in both international and domestic financial markets. The results are robust to changes in country sample and alternative estimation methodology, and are consistent with fiscal rules helping to build policy credibility by reducing the probability of default and the “risk premium” on government debt that compensates lenders for this possibility. (JEL E43, G12, H60)     

The Affordability of Social Protection in the Light of International Spending Commitments

In recent years a number of international sector‐specific agreements have been developed by the international community and ratified by developing countries – some with specific spending targets. This article offers an empirical analysis of the individual and aggregate affordability of six sectoral targets and, based on the actual or estimated cost of each of the targets, compares target spending levels with actual government expenditure in five African countries. Most targets are not met and, while individually ‘affordable’, the estimated cost of meeting the six targets simultaneously indicates that they are not jointly affordable, with an estimated cost of more than 100% of total government expenditure in four of the five countries. Meeting any of the sectoral targets in full would require either sectoral trade‐offs, or significant increases in donor or government expenditure.     

FISCAL DECENTRALIZATION AND ECONOMIC GROWTH: SPENDING VERSUS REVENUE DECENTRALIZATION

This article examines whether the efficiency gains accompanying fiscal decentralization generate higher growth in more decentralized economies, applying pooled‐mean group techniques to a panel dataset of 23 Organization for Economic Co‐operation and Development (OECD) countries, 1972–2005. We find that spending decentralization has tended to be associated with lower economic growth while revenue decentralization has been associated with higher growth. Since OECD countries are substantially more spending than revenue decentralized, this is consistent with Oates' (1972) hypothesis that maximum efficiency gains require a close match between spending and revenue decentralization. It suggests reducing expenditure decentralization, and simultaneously increasing the fraction financed locally, would be growth‐enhancing. (JEL E62, H71, H72)     

What are the likely interactions among innovation,government debt,and employment?

The study here analyzes the interactions among labor, R&D intensity, and public expenditure on education (indicators of innovation), considering public debt of countries. The study is based on 27 European countries over the 1995–2009 and applies multiple regression analysis. Main findings seem to be: a significant interaction of public expenditure on education and R&D intensity with employment rate, whereas an increase of general government consolidated gross debt has a negative interaction for employment rate as well as for technology indicators. The theoretical framework and empirical evidence suggest vital political economy implications to support employment rate during contractions of the business cycle. In particular, considering the specificity of the economic structure of countries, a fruitful lung-run political economy of growth should slowly dry out public debt by supporting GDP growth, rather than reducing government debt with high taxation and balanced-budget rules, in order to decrease frictional effects for patterns of economic, technological, and employment growth.     

Healthy, educated and wealthy: A primer on the impact of public and private welfare expenditures on economic growth

In this paper, we provide first evidence of the impact of public and private expenditures in health and education on economic growth, via their influence on people's health, skills and knowledge. We consider a growth accounting framework in order to test whether countries that devote a larger amount of resources to the consumption of health and educational services experience higher growth rates. We also test whether the effects on economic growth of public expenditure in health and education differ from those of private expenditure. Our empirical analysis is based on a panel of 19 OECD countries observed between 1971 and 1998. The results are consistent with the hypothesis that health and education expenditure affects positively growth. The estimated impact is stronger for health than for education. More importantly, we find some evidence that public expenditure influences GDP growth more than private expenditure.     

FISCAL FEDERALISM,DECENTRALIZATION, AND ECONOMIC GROWTH: A META‐ANALYSIS

The theoretical literature on fiscal federalism has identified several channels through which government decentralization could affect economic growth. Much of the literature focuses on the efficiency aspects of a decentralized provision of public services, but decentralization may also increase growth by raising the ability of the political system to innovate and carry out reforms. In contrast, some authors argue that decentralization increases corruption and government inefficiency, and thus may diminish growth. Given this theoretical ambiguity, several studies have attempted to identify the effect of decentralization on economic growth empirically over the last two decades. We review and conduct a meta‐analysis of this empirical literature. Based on our analysis, we point out open questions and discuss possible ways to answer them. (JEL H77, O43, C52)     

Optimal Deterrence with Legal Defense Expenditure

Legal defense expenditure by honest and dishonest accused can increase or reduce the amount of crime, and deterrence can decrease when punishment is increased. Unregulated expenditure of innocent and guilty defendants is inefficient whether or not there is a direct social harm from type I and II errors. The circumstances in which the optimal fine bankrupts convicted dishonest or honest defendants, regulation to limit defense expenditure and a tax-financed public defender system are also investigated.     

On the usefulness of government spending in the EU area

This paper investigates the effects of government spending on private consumption and investment in the European Union (EU). A certain consensus has been reached on the expansionary Keynesian effects of fiscal impulses on the economic activity. However, the existing empirical literature has concentrated on few countries, mostly outside the EU. We check the validity of this result for the EU area using annual data and a panel vector auto-regression approach, with particular attention being paid to robustness across alternative identification assumptions based on Cholesky orderings. Our results show that shocks to public spending positively affect private consumption and investment. According to our baseline estimate, a 1% increase in public current expenditure produces a 0.24% impact rise in private consumption, and a 0.41% impact rise in private investment. The effects are substantial, and die out slowly in the case of private consumption (the cumulative impact amounts to +0.56% after 3 years), but much faster in the case of private investment. A further disaggregation between wage and non-wage components reveals that public salaries have a relatively stronger stimulating role. This is not due to the different weights on GDP of the two components, which have comparable values in our sample.     

INTERNATIONAL TAX COMPETITION AND THE DEFICIT BIAS

I analyze the dynamic effects of tax competition on public budget deficits. I find that stronger tax competition leads to a fiscal deficit bias at the early stages of financial liberalization. When countries differ in terms of capital mobility, further liberalization leads to external imbalances and diverging fiscal deficits while corporate tax rates converge. Consistent with theory, I find that stronger tax competition increases deficits in a sample of OECD countries, controlling for tax revenues and other standard determinants of fiscal deficits. (JEL E62, F62)     

Democracy and Military Expenditure: A Cross-Country Evidence

The growth effects of the degree of democracy have recently been analysed in the literature. However, there is no general agreement as to the net effect of democracy on economic growth. Another strand of literature analyses the effects of increased levels of democracy on peace, arguing that as the degree of democracy increases, the probability of conflict between countries declines. From this line of argument it follows that more-democratic countries allocate less of their scarce resources for defence purposes than less-democratic states. This paper tests empirically if there is a negative relationship between the degree of democracy and defence expenditures. The empirical analysis is based on data for up to 92 countries for the time period 1987–1997. The relationship between the military expenditure and democracy is investigated by using cross section and panel estimation techniques. The results suggest that higher degree of democracy is associated with lower levels of military expenditure.     

THE COMPOSITION OF GOVERNMENT EXPENDITURE: ECONOMIC CONDITIONS AND PREFERENCES

This paper examines the question of why the composition of government expenditure differs among democratic countries and to what extent it may be explained by differences in economic conditions or preferences. A simple overlapping generations model, which allows for a range of relevant factors, is constructed to examine the division of expenditure on public goods and a transfer payment under majority voting. The model yields a closed‐form solution for the majority choice of the expenditure ratio. An empirical examination suggests that income inequalities play a minor role while different preferences for public goods reflecting cultural differences across countries may play an important role in accounting for the substantial variations in expenditure patterns. (JEL D72, H41, H53, H11)     

Effects of Macroeconomic Uncertainty on Investment and Economic Growth: Evidence from Pakistan

The relationship between macroeconomic uncertainty, investment and economic growth is an empirical issue in developing countries. This paper investigates the effects of macroeconomic uncertainty on investment and economic growth in Pakistan for the period 1975–2008 by using the accelerator model of investment and endogenous growth model. The conditional variances, directly estimated through the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model is utilized for erecting the uncertainty variables related to fiscal policy, openness and foreign capital inflows. The results clearly indicate that the macroeconomic uncertainty have significant negative effects on investment and per capita income of Pakistan. We conclude that a reduction in macroeconomic uncertainty through appropriate fiscal and monetary policy, stability in capital inflows and improved trade performance could result in high investment and sustainable economic growth in the country.     

产业结构、公共支出与省际城镇化差异

利用分省的2005-2011年面板数据,对产业结构、公共财政支出与城镇化关系进行实证研究,发现产业结构、公共财政支出以及城镇建设水平都对城镇化进程具有显著影响,其中产业结构是首位的影响因素,产业结构的优化升级是推进新型城镇化的重要支撑,而公共财政支出和城镇建设水平的提高对城镇的人口承载力同样具有正效应。     

Net impact of government funding on nonprofit fiscal health: burden or benefit?

This study examines the impact of federal grant awards on the financial health of recipient nonprofits. Although a modest body of research finds that government grants are beneficial to nonprofit fiscal health, a large Urban Institute study (2010, 2013, 2015) found that nonprofit managers receiving government grants consistently report fiscal harm due to awards that do not cover all program costs, late payments, and significant administrative burden. Those findings raise the question of whether government funding leads to net benefits or net harm for organizations given the administrative and fiscal burdens identified. This study tests that question using a large panel of federal grants to estimate the impact of government awards on three measures of nonprofit financial health. We find that government grants promote an increase in nonprofit size, improve operating margins, and increase financial reserves for recipient organizations. These benefits endure after the receipt of the award.     

GROWTH, WELFARE, AND THE SIZE OF GOVERNMENT

Using an endogenous growth model in which government purchases directly affect aggregate productivity and utility, fiscal policy experiments conducted here indicate that the macroeconomic effects of changes in fiscal policy are at least as sensitive to the mix of spending cuts as they are to the mix of tax cuts. In fact, reducing the size of the government actually reduces growth and welfare freductions in government expenditures are heavily weighted towards reductions in public capital or if the proceeds are not used to reduce capital taxation. In addition, across-the-board spending cuts are not likely to significantly improve growth and welfare. ( JEL E62, 041)     

Economic policy and the level of self-perceived well-being: An international comparison

The focus of macroeconomic inquiry has traditionally been on studying economic growth. The success or failure of any government initiated expenditure, revenue, or regulatory policy is commonly judged by the rate of the ensuing economic growth. This study focuses on whether economic variables that figure prominently in current policy discussions, such as economic growth and economic freedom, are related to the self-reported levels of well-being of individuals. The econometric analysis attempts to uncover those economic factors that appear to be the most highly correlated with a country's success or failure in promoting its citizens’ well-being. The cross-country sample includes 68 countries of diverse characteristics and uses averaged data for the 1990s.     

FISCAL READJUSTMENTS IN THE UNITED STATES: A NONLINEAR TIME-SERIES ANALYSIS

We analyze the fiscal adjustment process in the United States using a multivariate threshold vector error regression model. The shift from single-equation to multivariate setting adds value both in terms of our economic understanding of the fiscal adjustment process and the forecasting performance of nonlinear models. We find evidence that fiscal authorities intervene to reduce real per capita deficit only when it reaches a certain threshold and that fiscal adjustment takes place primarily by cutting government expenditure. The results of out-of-sample density forecast and probability forecasts suggest that a shift from a univariate autoregressive model to a multivariate model improves forecast performance. ( JEL C32, C53, E62)     

Government communication about potential policies: Public relations,propaganda or both?

In this article, we discuss some of the arguments for and against government communication about potential public policies. This form of government communication is controversial, as it can be perceived as tax-financed propaganda for the politician or political party that is in power. Our basic argument here, however, is that an administration can communicate about potential policies in an ethical manner that also strengthens the democratic relationship between politicians and citizens by opening up the policy formulation process.     

FINANCIAL MARKETS' SHUTDOWN AND REACCESS

We employ a discrete‐time parametric duration model on a group of 121 countries over the period 1970–2011 and find that the probability of the end of financial markets' shutdown and reaccess falls as these events become longer. We also show that: (1) shutdown episodes are longer when economic prospects are poor and the degree of financial openness falls, the chief executive has been in office for long periods, and the country has a default history and (2) spells of reaccess tend to be longer when economic growth improves and financial openness increases, there are neither government crises nor government instability, and the country did not default in the past. (JEL C41, G15)     

Economic and fiscal implications of aging for subnational American governments.

This article begins with a brief review of the extensive literature dealing with the macroeconomic consequences of population aging in industrialized societies and places the question in the context of the political and economic framework of the United States. Next, we move to the fiscal ramifications of population aging for subnational units of government. The varying demographic sources of aging are then introduced and their economic implications are reviewed. The role of population aging within the context of subnational fiscal impacts is first examined by reviewing patterns of change in demand for state-government-provided public goods and services associated with an older population. These include primarily health care and income security. These considerations on the expenditure side are then extended to substate government, where primary and secondary education are easily the largest component of public budgets. Finally, the implications of demographic change on the revenue side of state and local public finances are considered, including potential impacts on sales, property, and income tax receipts.