Regional recovery in a diverse union

This article reviews the diverse state of economic recovery across the Euro area and across the UK. Distinctions are drawn between the experiences within the Euro area, particularly among the high debt countries, and the UK. The focus then turns to whether the ongoing reforms set out in the Four Presidents’ Report “Towards a Genuine Economic and Monetary Union” address the right issues. Turning to the most recent evidence on regional disparities within countries, it is clear that challenges remain, both for the Euro area and the UK. In the case of the UK, recent evidence on regional disparities in house prices present a challenge for the Bank of England and its Financial Policy Committee and are likely to provide a challenge to the use of its macro-prudential policy toolbox in the near future

Assessing the impact of monetary tightening : a sectoral analysis of the UK and Scottish economies

The Bank of England has increased interest rates by one quarter of a percentage point on three occasions since last summer, in August and November of 2006 and in January of 2007. January‟s increase in the base rate to 5.25% surprised many analysts, most of whom had expected the decision to be delayed until February. Although rates were kept on hold in February and March, most commentators are expecting a further increase in April or May

Joint estimates of automatic and discretionary fiscal policy for the OECD

Official calculations of automatic stabilizers are seriously flawed since they rest on the assumption that the only element of social spending that reacts automatically to the cycle is unemployment compensation. This puts into question many estimates of discretionary fiscal policy. In response, we propose a simultaneous estimate of automatic and discretionary fiscal policy. This leads us, quite naturally, to a tripartite decomposition of the budget balance between revenues, social spending and other spending as a bare minimum. Our headline results for a panel of 20 OECD countries in 1981-2003 are .59 automatic stabilization in percentage-points of primary surplus balances. All of this stabilization remains following discretionary responses during contractions, but arguably only about 3/5 of it remains so in expansions while discretionary behavior cancels the rest. We pay a lot of attention to the impact of the Maastricht Treaty and the SGP on the EU members of our sample and to real time data.Fiscal stabilization, automatic stabilizers, discretionary policy.

Retirement, health, unemployment, the business cycle and automatic stabilization in the OECD

Official adjustments of the budget balance to the cycle assume that the only category of gov-ernment spending that responds automatically to the cycle is unemployment compensation. But estimates show otherwise. Payments for pensions, sickness, subsistence, invalidity, childcare and subsidies of all sorts to firms respond automatically and significantly to the cycle as well. In addition, it is fairly common to use official figures for cyclically adjusted budget balances, di-vide by potential output, and use the resulting ratios to study discretionary fiscal policy. But if potential output is not deterministic but subject to supply shocks, then apart from anything else, those ratios are inefficient estimates of the cyclically-independent ratios of budget balances di-vided by potential output. (A fortiori, they are inefficient estimates of the cyclically adjusted ratios of budget balances to observed output.) Accordingly, the paper makes use of detailed data from the OECD’s Social Expenditure database to produce separate estimates of the impact of the cycle on disaggregated components of the budget balance, both in levels and in the form of their ratios to output. In addition, we discuss the relation between the two sorts of estimates. When the focus is on ratios of expenditure and revenue to output, the cyclical adjustments de-pend more on inertia in government spending on goods and services than they do on taxes (which are largely proportional to output). But they depend even still more on transfer pay-ments. Besides calling for different series for discretionary fiscal policy if ratios serve, these results also raise questions about the general policy advice to “let the automatic stabilizers work.â€automatic stabilization, discretionary fiscal policy, cyclically adjusted budget balances

Fiscal federalism and fiscal autonomy : lessons for the UK from other industrialised countries

The purpose of this article is the following. First, we provide a comparison of the degree of fiscal decentralisation in the UK with that in other countries, and assess the extent to which different areas of public expenditure are assigned to different tiers of government. Second, we assess the degree of fiscal autonomy in the UK compared to that in other OECD countries. We also provide some insights from the theory of fiscal federalism to assess whether the current degree of fiscal autonomy in the UK is optimal, or whether there are useful lessons to be learned from other economies. One key conclusion here is that, although there would seem to be good reasons to increase the degree of fiscal autonomy in the UK, one might want to proceed with caution. We also discuss whether other OECD countries offer useful models in terms of the method of allocation of block grants, the allocation of taxation to other tiers of government, and the way in which are used to achieve the twin objectives of fiscal efficiency and equity. Finally, we consider whether the 'asymmetric nature' of UK devolution, with different national and regional units being assigned different degrees of autonomy, represents a desirable model in the light of experiences elsewhere in Europe. In the next section, we outline the division of spending responsibilities between different tiers of government in the OECD economies. Then we compare the degrees of fiscal autonomy, and assess whether further reform is warranted in the case of the UK. In subsequent sections, we consider how the mixed use of central grants, shared taxation and devolved taxation can impact on the objectives of efficiency and equity; discuss the extent to which different subcentral governments have autonomy on borrowing; and examine how fiscal federalism is evolving in different countries

Wages, Productivity and Work Intensity in the Great Depression

We show that U.S. manufacturing wages during the Great Depression were importantly determined by forces on firms' intensive margins. Short-run changes in work intensity and the longer-term goal of restoring full potential productivity combined to influence real wage growth. By contrast, the external effects of unemployment and replacement rates had much less impact. Empirical work is undertaken against the background of an efficient bargaining model that embraces employment, hours of work and work intensity.

Fiscal decentralisation in Europe : a review of recent experience

In this paper we review countries' diverse experiences to draw conclusions on the pitfalls and opportunities that are open through decentralisation of governments' fiscal responsibilities to sub-central jurisdictions. We begin by reviewing the theoretical arguments for and against the decentralisation of spending responsibilities. We also provide a cross country comparison of the extent to which spending powers have been devolved in a range of European countries, putting each country's position into a wider context. Second, we review some insights from the theory of fiscal federalism on fiscal autonomy and assess the extent of autonomy at subcentral tiers of government in the same set of countries. We discuss the approaches that have been followed, and a number of the difficulties that particular countries have faced, as the fiscal autonomy of sub-central tiers of government has evolved. Our conclusions are set out in the final section

Institutional Quality and FDI to the South: An Analytical Approach

We ask whether MNEs’ experience of institutional quality and political risk within their “home†business environments influences their decisions to enter a given country. We set out an explicit theoretical model that allows for the possibility that firms from South source countries may, by virtue of their experience with poor institutional quality, derive a competitive advantage over firms from North countries with respect to investing in destinations in the South. We show that the experience gained by such MNEs of poorer institutional environments may result in their being more prepared to invest in other countries with correspondingly weak institutions.foreign direct investment, multinational enterprises, institutional quality

Fiscal Federalism, Fiscal Consolidations and Cuts in Central Government Grants: Evidence from an Event Study

In this paper we examine financial interactions between tiers of government. Whilst most existing empirical evidence has focused on the US, it is difficult to generalize conclusions obtained to countries where the position and remit of lower tiers of government is evolving or is less clear constitutionally. Applying event study methodology to a dataset covering 15 countries we examine the timing, extent and composition of fiscal changes around consolidation attempts and central government grant cuts. Highlighting the participation of central and sub-central tiers of government, our analysis also sheds light on key outcomes, including decentralized service provision and macroeconomic adjustment.

Does Public Governance always Matter? How Experience of Poor Institutional Quality Influences FDI to the South

This paper investigates whether the higher prevalence of South multinational enterprises (MNEs) in risky developing countries may be explained by the experience that they have acquired of poor institutional quality at home. We confirm the intuition provided by our analytical model by empirically showing that the positive impact of good public governance on foreign direct investment (FDI) in a given host country is moderated significantly, and even in some cases eliminated, when MNEs have been faced with poor institutional quality at home.South-South FDI, public governance, institutions