Growth-friendly fiscal rules? Safeguarding public investment from budget cuts through fiscal rule design

Ardanaz, Mart́ın; Cavallo, Eduardo A.; Izquierdo, Alejandro; Puig, Jorge

doi:10.1016/j.jimonfin.2020.102319

Cited by 45 publications

(49 citation statements)

References 64 publications

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“…The recurrent expenditure and natural disaster-resilient fiscal rules are better than traditional expenditure rules since capping expenditure growth constrains government expenditure required for recovery of damages caused by disasters. The fiscal rules add a growth-friendliness dimension to the fiscal sustainability objective, provided public investment is productive [71]. Our investment-friendly natural disaster-resilient rule supports (re)building infrastructure (e.g., coastal protection) to meet its needs for protecting people and property from natural disasters/climate change.…”

Section: Investment-friendlinessmentioning

confidence: 99%

“…In addition, to attain countercyclical nature, sophisticated rules (e.g., cyclically-adjusted budget balance rule) are recommended. Countries with flexible fiscal rules do not show negative effects of fiscal consolidation on public investment [71]. Third, to promote enforceability of fiscal rules, fiscal council and broader sanctions are embedded.…”

Section: Second-generation Fiscal Rulesmentioning

confidence: 99%

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Fiscal Rules for Natural Disaster- and Climate Change-Prone Small States

Nakatani

2021

Sustainability

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How should small states formulate a countercyclical fiscal policy to achieve economic stability and fiscal sustainability when they are prone to natural disasters, climate change, commodity price changes, and uncertain donor grants? We study how natural disasters and climate change affect long-term debt dynamics, and we propose cutting-edge fiscal policy rules. We find the primacy of a recurrent expenditure rule based on non-resource and non-grant revenue, interdependently determined by government debt and budget balance targets with expected disaster shocks. This innovative fiscal rule is classified as a natural disaster-resilient fiscal rule, which comprises a plethora of new advantages compared to existing fiscal rules. This new type of fiscal rule can be called as the third-generation fiscal rule. It encompasses natural disasters and climate change, uses budget data only, avoids the need for escape clauses, and operates on a timely basis. Our rule-based fiscal policy framework is practically applicable for many developing countries facing an increasing frequency and impact of devastating natural hazards, and climatic change.

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Section: Investment-friendlinessmentioning

confidence: 99%

Section: Second-generation Fiscal Rulesmentioning

confidence: 99%

Fiscal Rules for Natural Disaster- and Climate Change-Prone Small States

Nakatani

2021

Sustainability

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“…First, fiscal rules are an important determinant of the composition of public spending in Latin America and the Caribbean (LAC) and second, these rules have made capital expenditures lose ground to current expenses. Also, Ardanaz et al (2020) find, for a sample of 75 countries, comprising 17 LAC countries, including Peru, 2 that when rigid fiscal rules 3 are applied, fiscal consolidation is achieved through a reduction of public investment.…”

Section: Introductionmentioning

confidence: 99%

“…Ardanaz et al (2020) argue that Peruvian fiscal rules have two characteristics of flexibility. On the one hand, they have specific escape clauses.…”

mentioning

confidence: 99%

Fiscal Rules and Public Investment: The Case of Peru, 2000-2019

Bellido¹,

Vega²,

Rojas³

et al. 2021

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This article has three goals. First, it describes the genesis of fiscal rules in Peru and its degree of compliance. Second, it estimates the effect of fiscal rules adoption on public investment. Last, it analyzes the impact of alternative fiscal rules on public investment and public debt sustainability. Our main results are as follows. First, the implementation of fiscal rules in the year 2000 caused a 60 to 80 percent fall in public investment relative to several counterfactuals. Second, our DSGE model suggests a Structural Fiscal Rule would have increased the consumers welfare in the period 2000-2019 more than other fiscal designs. This rule reduces the procyclicality of public investment under commodity price shocks and macroeconomic volatility under world interest rate shocks. Third, a Structural Fiscal Rule has the lowest probability of exceeding the current public debt limit (30 percent of GDP), although there is a trade-off between investment-friendly rules and fiscal sustainability issues. Nevertheless, our quantitative results are limited to short spans of analysis. With a long-run perspective, we may say that fiscal rulesdespite constant modifications and recurring non-compliancehave fulfilled their original and most important goal of achieving the consolidation of public finances.

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“…Nizioł (2018) proves that, in addition to fiscal discipline in public spending, the fiscal rule effectively limits the growth of public debt, which has a positive effect on macroeconomic stability. Ardanaz et al (2021) state that fiscal rules are flexible if they include features to accommodate exogenous shocks. Owsiak's (2016) work deserves considerable attention, in which a thorough analysis of the development of the Polish tax system.…”

Section: Introductionmentioning

confidence: 99%

Fiscal Policy of Economic Development: Comparative Characteristics of Ukraine and Poland

Sliusarchuk

Lavrov

Kuybida³

et al. 2021

Etikonomi

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In order to achieve the purpose outlined, this research uses the following methods: analysis and synthesis; economic and statistical analysis and comparison; economic and mathematical; generalization. The result shows that Poland's fiscal policy aims at developing economic infrastructure and building an economic model of the state based on the manufacture of products with a high share of value-added. However, the fiscal policy of Ukraine does not have significant effects on economic development due to the use of such instruments as public debt and capital expenditures. However, the external debt dependence of the state is relatively high. Nevertheless, it proves that the fiscal policy of Ukraine does not increase the level of economic complexity and development of the processing industry through the implementation of tax benefits. It proposes to increase the efficiency of tax authorities in Ukraine in terms of combating the shadow economy, boost the share of capital expenditures and raise the level of conversion of public debt into economic growth.JEL Classification: E62, F63, H21How to Cite:Petrunenko, I., Lavrov, R., Kuybida, V., Slatvinskyi, M., & Zelenskyi, A. (2021). Fiscal Policy of Economic Development: Comparative Characteristics of Ukraine and Poland. Etikonomi, 20(2), xx– xx. https://doi.org/10.15408/etk.v20i2.22013.

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Growth-friendly fiscal rules? Safeguarding public investment from budget cuts through fiscal rule design

Cited by 45 publications

References 64 publications

Fiscal Rules for Natural Disaster- and Climate Change-Prone Small States

Fiscal Rules for Natural Disaster- and Climate Change-Prone Small States

Fiscal Rules and Public Investment: The Case of Peru, 2000-2019

Fiscal Policy of Economic Development: Comparative Characteristics of Ukraine and Poland

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