Appraising fiscal reaction functions

We estimate fiscal responses for an OECD panel, accounting for cross-country interactions, and also estimate the fiscal responses in a panel VAR. We find that governments have increased primary balances when facing higher government indebtedness, implying a Ricardian fiscal regime, while primary balances have improved to reduce government debt. These results hold for the single regression panel analysis and for the panel VAR.fiscal regimes, Panel VAR, cross-sectional dependence

Entrepreneurial attitude, geographical isolation and university students - some evidence from the Atlantic

Some regions like Island of Madeira show high levels of firm birth rate. But the entrepreneurial experience is quite different from the European reality given the high level of micro-business owing o subsistence reasons, as a response to the reduced opportunity costs, the lack of profitable employment options and the high levels of unemployment. As a consequence the high level of entrepreneurship is only partially related to high tech innovative firms, qualified employment growth and economic diversification. The majority of the new firms are linked with traditional sectors (restaurants, boutiques, personal services and civil construction. Firm creation is also a result of the EU integration and cohesion policies. On the other hand infra-structure development policies explain the increasing importance of the public administration in terms of employment and consequently the low levels of unemployment. Traditionally, in the islands, the government intervention in terms of employment, economic planning is considered excessive. The island economies have been able to benefit from large streams of international solidarity in terms of high external aid per capita especially due to their strategic relevance. But the global economic and political change associated with the globalisation put increasing pressure on the island forcing them to reformulate their economic, social and political options. International donors and institutions like World Bank stresses issues such as economic diversification, economic and social modernisation and macroeconomic policies focused o supply side effects and the development of economic growth determining factors. Due to the reduced levels of international aid, islands are obliged to diminish levels of government intervention connected to public employment and direct production activities and to enhance private initiatives and entrepreneurship. In what concerns the outermost regions the EU enlargement demands increasing levels of competitivity, financial autonomy, economic diversification and entrepreneurial attitude. Given the lack of studies in this geographical area, the on-going economic, social and cultural modernisation induced by the integration in The EU sphere and the widespread perception about the changing times, we intend in this study to give some answers to the following questions: .how is the entrepreneurial attitude affected by the historical record of high levels of government intervention and public employment? .what kind of impacts results from the perceived “island penalty”, in terms of propensity towards entrepreneurship? .What is the main obstacle to the entrepreneurial event? .Should one wish to create a firm, what is the probability of the stated preference is in the high tech sectors? What kind of support will be required and welcomed from the public institutions? Studies and academic studies in islands have some advantages. The agglomeration of institutions, populations, firms and social networks in a reduced geographical space enable us to capture in some detail a vast group of variables, relationships and cause effects linked to a specific subject. Islands societies have a large and cohesive social capital, and share a homogenous set of values and cultural attitudes, which facilitates experiences of collective action. To conduct an empirical test in order to find out the most influential variables in the entrepreneurship attitude we use logit equations. The sample is made up of local university students, theoretically the most apt in developing innovative firms. We investigate also the differences between economics and managements and humanities students in terms of entrepreneurship propensity. An important matter in isolated, peripheral and underdeveloped regions is the diffusion of innovations. Consequently, student’s sources of information and knowledge regarding the overall tendencies of profitable, innovative and fashionable entrepreneurial experiences must be identified. Therefore, this paper describes the changing and uncertain economic and political environment faced by islands societies. A contextualisation of the relationship between entrepreneurship, economic growth and insular penalty is stretched and lastly, we provide an empirical study related to the entrepreneurial attitude in an insular region: The Island of Madeira.

Assessing fiscal episodes

In an OCDE panel, for the period 1970-2010, we assess the effects of fiscal consolidation episodes, with four different definitions. Our results reveal that lower final government consumption would increase private consumption in three out of the four approaches, when there is a fiscal consolidation, and the debt ratio is above the cross-country average. The change in the cyclically adjusted primary balance and the duration of the consolidation episode contribute for the success of the consolidation, and the opposite applies if the latter is more based on the revenue side. Finally, the effects of social transfers on private investment tend to be negative.fiscal consolidation, non-Keynesian effects, panel data, logit Classification-C23, E21, E62, H5, H62

Economic performance and government size

We construct a growth model with an explicit government role, where more government resources reduce the optimal level of private consumption and of output per worker. In the empirical analysis, for a panel of 108 countries from 1970-2008, we use different proxies for government size and institutional quality. Our results, consistent with the presented growth model, show a negative effect of the size of government on growth. Similarly, institutional quality has a positive impact on real growth, and government consumption is consistently detrimental to growth. Moreover, the negative effect of government size on growth is stronger the lower institutional quality, and the positive effect of institutional quality on growth increases with smaller governments. The negative effect on growth of the government size variables is more mitigated for Scandinavian legal origins, and stronger at lower levels of civil liberties and political rights. Finally, for the EU, better overall fiscal and expenditure rules improve growth. JEL Classification: C10, C23, H11, H30, O40common correlated effects, fiscal rules, Growth, institutions, pooled mean group

A Longer-run Perspective on Fiscal Sustainability

This paper investigates the sustainability of fiscal policy in a set of 19 countries by taking a longer-run secular perspective over the period 1880-2009. Via a systematic analysis of the stationarity properties of the first-differenced level of government debt, and disentangling the components of the debt series using Structural Time Series Models, we are able to conclude that the solvency condition would be satisfied in mostly all cases since non-stationarity can be rejected, and, therefore, longer-run fiscal sustainability cannot be rejected (Japan and Spain can be exceptions). The same would be true for the panel sample analysis.fiscal sustainability, government debt, unit roots, breaks, structural time series models Classification-C23, E62, H62

Measuring the Success of Fiscal Consolidations

We measure the success of fiscal consolidation, with alternative definitions, based on ad-hoc quantitative approaches and on a policy-action approach. The cyclically adjusted primary balance, and the duration of the consolidation contribute for its success, and the opposite applies for revenue based consolidations.fiscal episodes, panel data, logit Classification-C23, E62, H50, H62

Growth and Productivity: the role of Government Debt

We use a panel of 155 countries to assess the links between growth, productivity and government debt. Via growth equations we assess simultaneity, endogeneity, cross-section dependence, nonlinearities, and threshold effects. We find a negative effect of the debt ratio. For the OECD, the higher the debt maturity the higher economic growth; financial crisis are detrimental for growth; fiscal consolidation promotes growth; and higher debt ratios are beneficial to TFP growth. The growth impact of a 10% increase in the debt ratio is -0.2% (0.1%) respectively for countries with debt ratios above (below) 90% (30%), and an endogenous debt ratio threshold of 59% can be derived.government debt, crises, panel analysis. Classification-C23, E62, H50.