Fiscal Policy and Fiscal Rules in the European Union

This paper discusses the theory and practice of counter-cyclical fiscal policy to draw conclusions relevant for the fiscal architecture of the European Union. It starts by reviewing major lines of criticism on counter-cyclical fiscal policy, such as the existence of various lags, versions of Ricardian equivalence, non-Keynesian effects of fiscal policies and public choice considerations leading to asymmetry in the use of fiscal instruments. The paper then focuses on factors hampering implementation of a counter-cyclical fiscal policy. First, estimates of counterfactual variables – current and future – that are needed for running the policy are subject to significant margins of uncertainty. Second, relationships between national income on the one side and public revenues and spending on the other side tend to be unstable. Third, precise and timely measures of fiscal positions are largely non-existent. Finally, political requirements for an effective counter-cyclical policy are not met. The pre-Maastricht experience of EU countries, with a massive buildup of public debt despite fiscal-friendly environment, suggests a need for fiscal rules to avoid Argentina-like debt crises. Diverging initial positions of countries call for flexible approach as to the time needed to conform but not for relaxation of the rules, as it recently happened to the Stability and Growth Pact.fiscal rules, counter-cyclical policy, Stability and Growth Pact

Korupcija i ekonomija

This paper focuses on the economic and not on the political impact of corruption. Corruption delegitimizes the working of a market economy,as well as the outcomes of political processes. This paper highlights ways in which corruption, by distorting economic decisions and the working of the market economy, inevitably reduces a country’s rate of growth. The paper also discusses some of the channels through which corruption distorts various economic decisions. Finally, the paper reports on some actions that have been taken by countries in their attempt to reduce corruption stressing that the fight against corruption cannot rely on a magic bullet but has to be fought on many fronts

Corruption, Complexity and Tax Evasion

Tax evasion is facilitated by corruption, and corruption is facilitated by tax complexity. This article argues and presents evidence that tax systems have become far more complex than they need to be. The growth of public sector operations over the past century was accompanied by higher and more complex taxes, higher public spending, many new government programs, and an increasing involvement by governments in the functioning of the countries’ economies and in the activities of citizens. It has created a great deal of complexity in public sectors, and a fertile field for corruption, tax evasion or tax avoidance, and abuses in some government programs. The more governments relied on tax systems to pursue an increasing number of social and economic objectives, the more complex the tax systems became and the greater were the opportunities created for some taxpayers to get around the system. Complexity also encourages the growing army of lobbyists to push for small tax changes advantageous to their clients, causing tax systems to become increasingly more complex. In addition, it increases the costs of administering tax systems and of complying with the many tax obligations. To what extent tax systems have become fertile for corruption and tax evasion is likely to depend on cultural characteristics of countries among other factors. Globalization has opened new doors and new opportunities for individuals and corporations who operate, or can operate, globally to exploit the new tax-avoiding possibilities created by globalization and a global financial system. Nevertheless, complexity is not inevitable. It could, however, be reduced, as the experience of some countries has shown