Fiscal policy in developing countries : a framework and some questions

This paper surveys fiscal policy in developing countries from the point of view of long-run growth. The first section reviews existing methodologies to estimate the effects of fiscal policy shocks and of systematic fiscal policy, with time series or with cross-sectional methods, and their applicability to developing countries. The second section surveys optimal fiscal policy in developing countries, by considering the role of the intertemporal government budget, and sustainability and solvency. It also reviews the fuzzy debate on"fiscal space"and"macroeconomic space"- and the usefulness (or lack thereof) of these terms for policy analysis. The third section asks what theory tells us about the optimal cyclical behavior of fiscal policy in developing countries. It shows that it very much depends on the assumptions about the interactions between credit market imperfections at the individual, firms, or government level, and on the supply of external funds to the country. Different sets of assumptions lead to different implications about optimal cyclical behavior. The available evidence on the cyclical behavior of fiscal policy, and possible reasons for the observed prevalence of a procyclical behavior in developing countries, is also reviewed. If one agrees that fiscal policy is indeed less countercyclical than we think is optimal, the issue is how to correct the problem. One obvious question is why government do not self-insure, i.e. why they do not accumulate assets in upturns and decumulate them in downturns. This leads to the analysis of fiscal rules and stabilization funds, in the fourth section. The last section concludes with what the author considers important research and policy questions in each part.Economic Stabilization,Debt Markets,Public Sector Expenditure Analysis&Management,Economic Theory&Research,

Gasto público en protección social en Colombia: análisis y propuestas

Introducción. Tradicionalmente, los gastos en salud y educación han jugado un papel principal tanto en las discusiones teóricas como en la asignación del gasto social en Colombia. Esto refleja un punto de vista compartido por muchos en el sentido que la política social debe orientarse a erradicar las causas de la pobreza en vez de sus manifestaciones. En este trabajo se argumenta que este punto de vista tiene muy poco contenido teórico y, de manera más importante, puede ser responsable por una actitud que menosprecia todos aquellos programas sociales enfocados a los pobres que no contribuyen, de una u otra forma, a construir capital humano. En cambio, se argumenta que estos programas deberían tener ciudadanía total en un país del nivel de desarrollo como Colombia. Sin embargo, hasta al interior de los gastos sociales diferentes a salud y educación se nota que la asignación actual está muy sesgada hacia programas que no benefician a los pobres o que a menudo lo hacen tan sólo de manera marginal. En particular, las pensiones tienen una participación excesiva en el gasto social y se pagan, casi exclusivamente, a los últimos dos quintiles de la distribución. Esto deja muy poco espacio para otros programas, principalmente aquellos dirigidos a los niños y sus familias y a programas relacionados con el mercado laboral. Estos programas, a su vez, sufren de problemas propios, particularmente de una casi completa falta de evaluaciones útiles, una excesiva fragmentación en muchos organismos y subprogramas y una falta de claridad en sus objetivos, lo cual es una consecuencia casi inevitable. La estructura de este trabajo es la siguiente. Considerando la ausencia de un marco teórico comprehensivo que sirva para analizar el gasto social, la Sección 2 discute las características más importantes a considerar al evaluar el gasto social colombiano. La Sección 3 ubica al gasto social en el contexto más amplio de la política fiscal, discutiendo la evolución de la pobreza en los años noventa y los instrumentos disponibles para focalizar el gasto social. La Sección 4 discute extensamente los principales programas sociales en las áreas de pensiones, familias y niños y empleo y desempleo. La Sección 5 contiene las conclusiones del estudio.Gastos Públicos

Estimating the effects of fiscal policy in OECD countries

This paper studies the effects of fiscal policy on GDP, prices and interest rates in 5 OECD countries, using a structural Vector Autoregression approach. Its mains results can be summarized as follows; 1) The effects of fiscal policy on GDP and its components have become substantially weaker in the last 20 years; 2) The tax multipliers tend to be negative but small; 3) Once plausible values of the price elasticity of governments spending are imposed, the negative effects of government spending on prices that have been frequently estimated become positive, although usually small and not always significant; 4) Government spending shocks have significant effects on the real short interest rate, but uncertain signs; 5) Net tax shocks have very small effects on prices; 6) The US is an outlier in many dimensions; US responses to fiscal shocks are often not representative of the average OECD country included in this sample. JEL Classification: E62, H30

The European Union: A Politically Incorrect View

In this paper, we present our view of the recent evolution of European integration. We first briefly describe the main features of the institution and decision making process in the European Union, with particular attention to the debate between federalists and super nationalists. We then identify two key issues in the process of European integration: 1) an emphasis on “institutional balance” based on a complex web of institutions with overlapping jurisdiction; 2) A conflict between a dirigiste versus a more laissez faire approach to government. We argue that the first problem leads to a lack of clarity in the allocation of powers between European institutions, confusion in the allocation of prerogatives between national governments and EU institutions, and lack of transparency and accountability. The dirigiste culture also manifests itself in an abundant production of verbose rhetoric, which in our view is far from innocuous and direct set the European policy debate in the wrong direction. We then study how these problems play out in 4 important areas: employment policies, culture and scientific research, foreign and defense policies, and fiscal policy. Finally, we study the implications of the recently proposed European Constitution a potential solution of these two problems.

Fiscal Expansions and Fiscal Adjustments in OECD Countries

This paper considers budget expansions and adjustments in OECD countries in the last three decades. Our main results are: i) on average fiscal expansions are the results of increases in expenditures, particularly of transfer programs, while contractions are typically due to tax increases; ii) however successful (i.e. long lasting), a minority of the total rely primarily on reduction of government wages and employment and cuts in transfer programs; iii) even major successful fiscal adjustments do not seem to have recessionary consequences, on average; iv) different types of governments show different degrees of success at implementing successful fiscal adjustment, with coalition governments showing the worst performance.

The European Union: A Politically Incorrect View

In this paper, we present our view of the recent evolution of European integration. We first briefly describe the main features of the institution and decision making process in the European Union, with particular attention to the debate between federalists and super nationalists. We then identify two key issues in the process of European integration: 1) an emphasis on institutional balance' based on a complex web of institutions with overlapping jurisdiction; 2) A conflict between a dirigiste versus a more laissez faire approach to government. We argue that the first problem leads to a lack of clarity in the allocation of powers between European institutions, confusion in the allocation of prerogatives between national governments and EU institutions, and lack of transparency and accountability. This dirigiste culture produces verbose rhetoric, which moves the European policy debate in the wrong direction. We then study how these problems play out in four important areas: employment policies, culture and scientific research, foreign and defense policies, and fiscal policy. Finally, we study the implications of the recently proposed European Constitution as a potential solution of these two problems.

An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output

This paper characterizes the dynamic effects of shocks in government spending and taxes on economic activity in the United States in the post-war period. It does so by using a mixed structural VAR/event study approach. Identification is achieved by using institutional information about the tax and transfer systems and the timing of tax collections to identify the automatic response of taxes and spending to activity, and, by implication, to infer fiscal shocks. The results consistently show positive government spending shocks as having a positive effect on output, and positive tax shocks as having a negative effect. The multipliers for both spending and tax shocks are typically small. Turning to the effects of taxes and spending on the components of GDP, one of the results has a distinctly non-standard flavor: Both increases in taxes and increases in government spending have a strong negative effect on investment spending.