With this paper, our objective is to empirically study public debt sustainability by estimating a fiscal reaction function where the primary balance relative to GDP is assumed to be a function of the ...public debt to GDP ratio of the previous year and of other macroeconomic variables. In particular, we take into account the effects of the lagged real long term interest rate and of the lagged inflation rate on the primary budget of the governments to account for monetary policy influences. We resort to the fixed effects and to the random effects models for a panel of 12 euro area economies from 1996 to 2020. We find statistical evidence for sustainable debt policies and detect that both monetary policy variables are positively correlated with the primary balance to GDP ratio. This holds both for the fixed and for the random effects estimation, when those variables are included simultaneously.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
•Explore the impacts of environmental policies (tax vs. subsidy) on a supply chain.•Examine how they abate pollutions, reduce emissions, and enhance the social welfare.•Provide insights to the ...government about when to implement tax or subsidy policy.
This paper investigates the impact of two environmental policies: emissions abatement subsidy and emissions tax, on a three-tier supply chain where the manufacturer distributes through competitive retailers and invests in emissions abatement manufacturing technology. The government pursues social welfare maximization, while the manufacturer and retailers are profit driven. We find that the subsidy policy offers the manufacturer greater incentives to abate pollution and yields higher profits for channel members; however, when emissions abatement is very costly and production emissions are highly damaging, the tax policy should be implemented, as the subsidy policy leads to lower social welfare and environmental performance. Interestingly, we show that the manufacturer has no incentive to improve emissions abatement efficiency if the environmental damage of its production is high under the subsidy policy or low under the tax policy. The manufacturer always welcomes more downstream entry under the subsidy policy but not necessarily under the tax policy; each retailer always fares worse with more competition. More competition enhances social welfare under the tax policy but not necessarily under the subsidy policy. Furthermore, caution should be exercised when adopting the subsidy policy, because a “hazard zone” exists where society suffers but does not under the tax policy.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
This book explores the problems of fiscal policy as an instrument of economic and social development in the modern environment, primarily focusing on the transition economies of Eastern Europe, ...Caucasus, and Central Asia. Evaluating the transformational experience in these countries, this work meets a need for a critical analysis in the aftermath of the 1990s market liberalization reforms, of current trends and to outline the roadmap for future development.
The Excessive Deficit Procedure (EDP), central to the Stability and Growth Pact, has been criticized from opposite ends. Some blame the EDP for imposing too much fiscal austerity. Others question ...whether the EDP has any disciplining power at all. To test its actual effects, we construct a real-time database of EDP recommendations and estimate augmented real-time and ex-post fiscal reaction functions for a panel of EMU member states. Overall, we find that a 1% of GDP larger EDP recommendation leads to 0.8–0.9% of GDP of additional fiscal consolidation plans, and 0.6–0.7% of actual consolidation. This result does not extend to countries subject to financial support programs: we find that, while they did implement substantial consolidation measures, in these countries required and delivered consolidation efforts are less connected. Overall, our results suggest that EDP recommendations have substantially shaped fiscal policies in the euro area, especially in the years 2010–2014, when EDP recommendations were most frequent.
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We estimate the effects of fiscal policy on the labor market in US data. An increase in government spending of 1 percent of GDP generates output and unemployment multipliers, respectively, of about ...1.2 percent (at one year) and 0.6 percentage points (at the peak). Each percentage point increase in GDP produces an increase in employment of about 1.3 million jobs. Total hours, employment and the job finding probability all rise, whereas the separation rate falls. A standard neoclassical model augmented with search and matching frictions in the labor market largely fails in reproducing the size of the output multiplier whereas it can produce a realistic unemployment multiplier but only under a special parameterization. Extending the model to strengthen the complementarity in preferences, to include unemployment benefits, real wage rigidity and/or debt financing with distortionary taxation only worsens the picture. New Keynesian features only marginally magnify the size of the multipliers. When complementarity is coupled with price stickiness, however, the magnification effect can be large.
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We assess the long-run growth effects of automation in the overlapping generations framework. Although automation implies constant returns to capital and, thus, an AK production side of the economy, ...positive long-run growth does not emerge. The reason is that automation suppresses wage income, which is the only source of investment in the overlapping generations model. Our result stands in sharp contrast to the representative agent setting with automation, where sustained long-run growth is possible even without technological progress. Our analysis therefore provides a cautionary tale that the underlying modeling structure of saving/investment decisions matters for the derived economic impact of automation. In addition, we show that a robot tax has the potential to raise per capita output and welfare at the steady state. However, it cannot induce a takeoff toward positive long-run growth.
We study the cyclical behavior of fiscal policy to explain why some countries exhibit procyclical fiscal policy stances—being expansionary in good times and contractionary in bad times. We develop a ...model that links the polarization of preferences over fiscal spending to the procyclicality bias. We then present evidence that social polarization as measured by income inequality and educational inequality is consistently and positively associated with fiscal procyclicality, even after controlling for other determinants from existing theories. We also find a strong negative impact of fiscal procyclicality on economic growth.
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BFBNIB, CEKLJ, INZLJ, IZUM, KILJ, NMLJ, NUK, PILJ, PNG, SAZU, UL, UM, UPUK, ZRSKP
Abstract Party competition sometimes resembles an auction, where parties seek to ‘buy’ elections through promises of economic largesse. In this article, I argue that whether parties engage in this ...practice will depend on political circumstances, such as the level of ideological competition. Incentives to promise more to voters will also vary depending on a party's electoral prospects: for parties that expect a significant level of government responsibility, promising too much is a risky strategy. I test these arguments by focusing on the spending commitments in party manifestos from 20 countries over the period 1945–2017. In line with expectations, parties tend to make more expansionary election pledges when ideological competition is more muted. In addition, left‐wing parties’ spending commitments are found to be influenced by their projected seat shares (based on opinion polls from before the start of the election campaign) relative to their competitors. Specifically, the stronger a left‐wing party's electoral prospects, the more fiscally conservative it tends to be, and vice versa.
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499.
The Safety Trap CABALLERO, RICARDO J.; FARHI, EMMANUEL
The Review of economic studies,
01/2018, Volume:
85, Issue:
1 (302)
Journal Article
Peer reviewed
Open access
In this article, we provide a model of the macroeconomic implications of safe asset shortages. In particular, we discuss the emergence of a deflationary safety trap equilibrium with endogenous risk ...premia. It is an acute form of a liquidity trap, in which the shortage of a specific form of assets, safe assets, as opposed to a general shortage of assets, is the fundamental driving force. At the Zero Lower Bound, our model has a Keynesian cross representation, in which net safe asset supply plays the role of an aggregate demand shifter. Essentially, safety traps correspond to liquidity traps in which the emergence of an endogenous risk premium significantly alters the connection between macroeconomic policy and economic activity. “Helicopter drops” of money, safe public debt issuances, swaps of private risky assets for safe public debt, or increases in the inflation target, stimulate aggregate demand and output, while forward guidance is less effective. The safety trap can be arbitrarily persistent, as in the secular stagnation hypothesis, despite the existence of infinitely lived assets.
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Conventional wisdom has it that in the 1930s fiscal policy did not work because it was not tried. This paper shows that fiscal policy was tried in 1936. The veterans' bonus of 1936 paid 2 percent of ...GDP to 3.2 million veterans; the typical veteran received a payment equal to per capita income. Multiple sources, including a household consumption survey, show that veterans spent the majority of their bonus. Point estimates of the At PC are between 0.6 and 0.75. Spending was concentrated on cars and housing in particular.
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