Previous research has shown that changes in the composition of tax revenue affect long-run growth. However, little is yet known about whether
the way
tax revenue is raised matters for growth. This ...paper examines whether, in the context of OECD countries, a revenue-neutral increase in the value-added tax (VAT), offset by a fall in income taxes, may have different effects on long-run growth depending on how the VAT is raised. We show that a revenue-neutral rise in the VAT promotes growth when it is raised through a rise in
C-efficiency
, while it does not when it is raised through a rise in the
standard VAT rate
, the rate applied to the largest portion of taxed consumption. C-efficiency measures the departure of the VAT from a perfectly enforced tax levied at a single rate on all consumption, which in advanced economies is largely due to the VAT that is not levied because of exemptions and reduced rates. Thus, our results suggest that an increase in C-efficiency, possibly reflecting the broadening of the VAT base through fewer exemptions and a more uniform rate structure with fewer reduced rates, promotes growth more than a rise in the standard rate.
This article examines the effects of public spending reallocations on economic growth. Assembling a disaggregated public spending dataset of 83 countries over the 1970–2011 period, we show that ...spending reallocations toward education, from health and social protection, have significant growth‐promoting effects across a wide range of countries' income levels. However, income heterogeneity matters, particularly when reallocations involve infrastructure spending. Specifically, a reallocation from this spending to education also promotes growth, albeit primarily when a country's income level is low. This occurs because the effects of infrastructure spending are particularly weak in low‐income countries, possibly due to the low quality of governance. (JEL O43, H50, O11)
Previous research on inflation targeting (IT) has focused on high‐income countries and emerging market economies (EMEs). Only recently have sufficient data accumulated for the performance of IT in ...low‐income countries (LICs) to be assessed. We show that IT has not so far been as effective in reducing inflation in LICs as in EMEs. Relatively low central banks’ instrument independence in LICs, associated with weak restrictions limiting a central bank’s lending to the government, helps explain this result.
This paper examines the role of institutions in the nexus between public spending and economic growth. Empirical results based on a newly assembled dataset of 80 countries over the 1970–2010 period ...suggest that particularly when institutions prompt governments to be accountable to the general citizen does public capital spending promote growth. Taking account of the type of financing for this spending, we show that the growth-promoting effect under an accountable government appears to prevail for various financing sources, including a reallocation from current spending, an increase in revenue, and a rise in the budget deficit. However, government accountability does not seem to play a key role in the growth effects of current spending.
Abstract
An inflation-targeting regime has been in place in Ghana since 2007, but the inflation rate has remained persistently high. During the 2007–2017 period, inflation exceeded the announced ...target by four percentage points on average, despite the target never falling below a relatively unambitious 8% per annum. We investigate whether the poor conduct of monetary policy is responsible for this outcome, and find that it is not. Monetary policy reaction functions are similar to those estimated for countries with successful monetary policies, and interest rates respond in the theoretically recommended way to inflation shocks.
Political budget cycles and media freedom Veiga, Francisco José; Veiga, Linda Gonçalves; Morozumi, Atsuyoshi
Electoral studies,
February 2017, 2017-02-00, Letnik:
45
Journal Article
Recenzirano
Odprti dostop
This paper examines the effects of elections on the conduct of central governments' fiscal policies. To do so, it uses a unique panel database that includes disaggregated spending and revenue series ...at the central government level for multiple countries over the 1975–2010 period. Examining political environments under which incumbent governments generate political budget cycles (PBCs), and comparing the relative importance of factors influencing cycles, we identify media freedom as the factor that plays the most critical role. This result provides a micro-foundation for rational opportunistic models for PBCs that rely on asymmetry of information about politicians' competence, and also offers a way to relate different conditioning factors of PBCs, including fiscal transparency and the maturity of democracies. Further, we show that the election-year rise in budget deficits under low media freedom is primarily driven by an increase in the current, not capital, component of public expenditure.
•The effects of elections on the conduct of central governments' fiscal policies are examined.•Compares the relative importance of conditioning factors of political budget cycles.•Media freedom is identified as the factor that plays the most critical role.•Provides a micro-foundation for rational opportunistic cycles that rely on asymmetry of information.•Evidence of election year increases in the current, not capital, component of public expenditure.
This thesis is a theoretical study of the role of credit market imperfections in business cycle dynamics. In particular, Chapters 2 to 4 focus on the credit channel of the monetary transmission ...mechanism, while Chapter 5 studies the role of shocks to credit markets in generating business cycle dynamics. The common framework used throughout the thesis is a New Keynesian (NK) framework characterised by imperfect competition and staggered pricesetting. The essence of the credit channel of monetary transmission is endogenous movements in the external finance premium, which, in turn, are caused by endogenous movements of agency costs generated in the presence of credit frictions. The credit channel works to complement the interest rate channel inherent to the standard NK model. Chapter 2 aims to shed light on the workings of the credit channel by presenting an analytical solution for the simpli…ed case where agency costs are modelled acyclical. I show that when acyclical agency costs are incorporated into an otherwise standard NK model, they amplify the real impact of money shocks but reduce the persistence of the real effects. This happens because credit frictions flatten both aggregate supply (AS) and aggregate demand (AD) relations of the model, where the former is essentially the New Keynesian Phillips curve while the latter is derived from the consumption Euler equation and money market equilibrium condition. Chapter 3 replaces the assumption of economy-wide input markets made in Chapter 2 with the one of segmented input markets. The reason for doing this is twofold. First, the latter assumption seems to capture the reality better. Second, the previous literature shows that the segmented market assumption is a crucial determinant for the degree of the persistence of the real effects of money shocks. I show that for given agency costs, both the real impact of money shocks and the persistence of the real effects are much greater in a model with the segmented input market assumption. This happens because the new assumption greatly flattens the AS curve. Chapter 4 directly studies the workings of the endogenous agency costs. Focusing on credit frictions in borrowing by firms (entrepreneurs), it compares the different business cycle dynamics generated by two alternative modelling strategies. The first assumes that entrepreneurs make a consumption/saving decision to maximise their intertemporal utility, but have a higher discount rate than households (original lenders). The second assumes that a constant fraction of entrepreneurs die each period and they consume all the accumulated wealth just before their death. These assumptions are widely used in the literature to keep agency costs operative. I show that the choice of the modelling strategies is key to the way the credit channel operates within the NK framework. Chapter 5 investigates the effect of shocks to credit markets on business cycle dynamics. Using the framework developed in Chapter 2, I show that shocks to credit markets affect agency costs and thus the external finance premium faced by entrepreneurs (borrowers). In turn, this causes a change in output. Then, turning to the framework developed in Chapter 4 with endogenous agency costs, I highlight that there is a feedback effect from macroeconomic conditions to the premium through endogenous developments in entrepreneurs' net worth. The change in the premium caused by the feedback effect leads to the further change in output.
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