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

The future of fiscal federalism

To predict the future it is always useful to study the past. The past can help us understand how the world evolved and might suggest possible developments for the future. However, the past must be considered a reference point, or a marker, and not an anchor. To see the future as the mirror image of the past is to ignore that progress and evolution always imply change. --

Comments on Recent Fiscal Developments and Exit Strategies

Kapitalmarktliberalisierung; Finanzmarktkrise; Regulierung; Wirtschaftliche Anpassung; Wirkungsanalyse

The Size of Government

We discuss and provide an overview of the size and role of the government, notably in terms of what the government “should” do, how the government could spend and intervene in the economy, how much governments spend and what they spend their money on. This is done from a historical perspective and also in a stylized way via assessing total expenditure, the composition of public expenditure for advanced, emerging and developing countries.info:eu-repo/semantics/publishedVersio

Does gender matter for public spending? Empirical evidence from Italian municipalities.

This paper studies whether municipal expenditure in Italy is influenced by female representation in city councils. To correctly capture the causal relation we use the instrumental variable technique. Our instrument is based on a temporary change in the Italian normative occurred between 1993 and 1995 that reserved a gender quota in party lists for municipal elections, causing an exogenous change in the number of women elected in city councils. We take advantage of the fact that not all the municipalities have been treated by the law, due to its short period of enforcement. Despite the existence of gender specific preferences in the society, we find no evidence that the allocation of resources among different spending categories is affected by the gender of politicians. Our results are consistent with the Median voter theorem. Alternatively, they may suggest that the gender is not a determinant of politicians’ voting behaviour, implying that the preferences of the women involved in political activities are close to those of their male colleagues.gender, political representation, municipal expenditure

The Level and Volatility of Interest Rates in the United States: The Roles of Expected Inflation, Real Rates, and Taxes

This paper attempts to demonstrate a need to expand the simple Fisherian view whereby changes in interest rates are explained largely by changes in expected inflation. It presents and tests a model of expected, after-tax real interest rate behavior which, together with a group of explanatory variables suggested by a structural model, takes full account of implications of a broad range of U.S. tax code provisions for behavior of interest rates. Determinants of interest rate volatility are also investigated.The model and results of empirical testing suggest:(1) why the measured impact on interest rates of changes in anticipated inflation has been below levels anticipated by many investigators; (2) how the measured impact on interest rates of explanatory variables is conditional on tax rates which may change over time; (3) larger than expected fiscal deficits have a moderate positive impact on interest rates (40 basis points per 100 billion annual rise for three-month Treasury bills) while lower than expected money growth may also raise interest rates (as iri the second quarter of 1981 when it did so by an estimated 24 basis points);(4) inflation uncertainty produces no significant impact on interest rates due to the econometric effect of including a measure of excess capacity; (5) an unexpected rise in money demand may be responsible for persistently higher interest rates during the first half of 1982 but during most of the 1960-82 period money supply shocks had a more powerful impact on interest rates.

Public sector efficiency: evidence for new EU member states and emerging markets

In this paper we analyse public sector efficiency in the new member states of the European Union compared to that in emerging markets. After a conceptual discussion of expenditure efficiency measurement issues, we compute efficiency scores and rankings by applying a range of measurement techniques. The study finds that expenditure efficiency across new EU member states is rather diverse especially as compared to the group of top performing emerging markets in Asia. Econometric analysis shows that higher income, civil service competence and education levels as well as the security of property rights seem to facilitate the prevention of inefficiencies in the public sector. JEL Classification: C14, H40, H50DEA, Efficiency, emerging markets, Government expenditure, new EU member states

Public sector efficiency: an international comparison

We compute public sector performance (PSP) and efficiency (PSE) indicators, comprising a composite and seven sub-indicators, for 23 industrialised countries. The first four sub-indicators are "opportunity" indicators that take into account administrative, education and health outcomes and the quality of public infrastructure and that support the rule of law and a level playing-field in a market economy. Three other indicators reflect the standard "Musgravian" tasks for government: allocation, distribution, and stabilisation. The input and output efficiency of public sectors across countries is then measured via a non-parametric production frontier technique. JEL Classification: C14, H50Efficiency, Free Disposable Hull, Government expenditure, Production possibility frontier