Output Effects of Fiscal Consolidations: Does Spending Composition Matter?

2021 ◽  
Author(s):  
Martín Ardanaz ◽  
Eduardo A. Cavallo ◽  
Alejandro Izquierdo ◽  
Jorge Puig
Keyword(s):  
Public Investment ◽  
Private Investment ◽  
Output Growth ◽  
Policy Implications ◽  
Budget Cuts ◽  
Fiscal Adjustment ◽  
Public Consumption ◽  
Fiscal Adjustments ◽  
Fiscal Consolidations ◽  
Alternative Identification

This paper studies whether changes in the composition of public spending affect the macroeconomic consequences of fiscal consolidations. Based on a sample of 44 developing countries and 26 advanced economies during 1980-2019, results show that while fiscal consolidations tend to be on average, contractionary, the size of the output fall depends on the behavior of public investment vis-a-vis public consumption during the fiscal adjustment, with heterogeneous responses growing over time. When public investment is penalized relative to public consumption and thus, its share in public expenditures decreases, a 1 percent of GDP consolidation reduces output by 0.7 percent within three years of the fiscal shock. In contrast, safeguarding public investment from budget cuts vis-a-vis public consumption can neutralize the contractionary effects of fiscal adjustments on impact, and can even spur output growth over the medium term. The component of GDP that mostly drives the heterogeneity between both types of adjustments is private investment. The results hold up to a number of robust-ness tests, including alternative identification strategies of fiscal shocks. The findings have policy implications for the design of fiscal adjustment strategies to protect economic growth as countries recover from the coronavirus pandemic.consolidation reduces output by 0.7 percent within three years of the fiscal shock. In contrast, safeguarding public investment from budget cuts vis-a-vis public consumption can neutralize the contractionary effects of fiscal adjustments on impact, and can even spur output growth over the medium term. The component of GDP that mostly drives the heterogeneity between both types of adjustments is private investment. The results hold up to a number of robustness tests, including alternative identification strategies of fiscal shocks. The findings have policy implications for the design of fiscal adjustment strategies to protect economic growth as countries recover from the coronavirus pandemic.

scholarly journals Do FDI and Public Investment Crowd in/out Domestic Private Investment in the SADC Region

2021 ◽  
Vol 19 (1) ◽  
pp. 3-25
Author(s):  
Eslon Ngeendepi ◽  
Andrew Phiri
Keyword(s):  
Capital Expenditure ◽  
Public Investment ◽  
Trade Openness ◽  
Government Expenditure ◽  
Private Investment ◽  
Policy Implications ◽  
Domestic Investment ◽  
Government Investment ◽  
Long Run ◽  
Short Run

Our study examines the crowding-in/out effect of foreign direct investment and government expenditure on private domestic investment for 15 members of the Southern African Development Community (SADC) for the period 1991–2019. The study employed the panel Pool Mean Group (PMG)/ARDL technique in estimating the short-run and long-run cointegration relationships between FDI, government capital expenditure and domestic private investment and adds three more variables for control purposes (interest rate, GDP growth rate and trade openness). For the full sample, FDI crowds-in domestic investment whilst government crowds-out domestic investment. However, in performing a sensitivity analysis, in which the sample was segregated into low and high income economies, both FDI and government investment crowd-in domestic investment whilst government expenditure crowds-out domestic investment in lower income SADC countries with no effect of FDI on domestic investment. Policy implications are discussed.

Private Sector Investment and Savings Behaviour: The Policy Implications of Capital Account Disaggregation (The Distinguishedl Lecture)

1992 ◽  
Vol 31 (4I) ◽  
pp. 491-510
Author(s):  
E. V .K. Fitzgerald
Keyword(s):  
Interest Rates ◽  
Public Investment ◽  
Government Expenditure ◽  
Output Growth ◽  
Policy Implications ◽  
Public Expenditures ◽  
Negative Effects ◽  
Real Wages ◽  
Macroeconomic Adjustment ◽  
Private Sector Investment

After a prolonged period of macroeconomic adjustment, lasting at least a decade in most LDCs, much has been learned (and in many cases re-learned) and a consensus reached about many key policy points, such as the virtues of budgetary balance, the need for a strong real exchange rate, and the requirement for microeconomic reforms if markets are to work properly. To a considerable extent, moreover, there has been success in closing current account deficits, reducing government expenditure and moderating rates of inflation. Much of this logic is reflected in the standard policy models employed by the Bank and the Fund which I shall discuss today. However, to the extent that macroeconomic adjustment is intended to lead on to renewed growth (and eventually poverty alleviation) the debate is far less consensual. Two main lines of critique have been directed at what can be called the 'Washington Consensus': The first suggests that macroeconomic adjustment - as theorised and practised - has had negative effects in terms of employment, income distribution and even the environment, particularly because of the reduction in real wages and key public expenditures. The second line of dissent from the standard model stresses the deleterious effect of orthodox macroeconomic adjustment packages on output growth itself, both through unnecessarily severe demand reductions on the one hand, and excessive adjustments (upward) to real interest rates and (downward) to public investment levels without taking into account the domestic implications of external debt positions.

Research Insights: Can the Design of Fiscal Rules Help to Protect Productive Public Investment from Budget Cuts?

2021 ◽  
Author(s):  
Martín Ardanaz ◽  
Eduardo A. Cavallo ◽  
Alejandro Izquierdo ◽  
Jorge Puig
Keyword(s):  
Negative Impact ◽  
Public Investment ◽  
Fiscal Rules ◽  
Fiscal Consolidation ◽  
Budget Cuts ◽  
Exogenous Shocks ◽  
Fiscal Consolidations

Flexible fiscal rules include mechanisms to accommodate unexpected/exogenous shocks. In countries without fiscal rules, or with rigid rules (i.e., rules without flexible features), public investment falls sharply during fiscal consolidation episodesby as much as 10 percent on average. The negative impact of fiscal consolidations on public investment disappears in countries using flexible fiscal rules.

scholarly journals Inflation and the public investment: Growth relationship in Vietnam

2018 ◽  
Vol 25 (S01) ◽  
pp. 50-67
Author(s):  
Bon Nguyen Van
Keyword(s):  
Economic Growth ◽  
Public Investment ◽  
Trade Openness ◽  
Private Investment ◽  
Public Capital ◽  
Policy Implications ◽  
The Public ◽  
Capital Spending ◽  
Investment Growth

Public capital spending positively contributes to economic growth and development in many countries worldwide. However, questions concerning the importance of inflation in the public investment–growth relationship are of great interest. This study examines the role of inflation in the public investment–growth relationship in Vietnam using the two-step GMM Arellano-Bond estimators for a balanced panel data of 52 provinces during the period of 2005–2014. More interesting are the empirical findings. First, inflation significantly increases the volume of public capital spending. Second, public investment and inflation enhance economic growth, but their interaction term impedes it. Third, private investment, government recurrent expenditure, and trade openness are the significant determinants of growth. These findings suggest some important policy implications related to public capital spending and inflation in developing countries, specifically the Vietnam government.

scholarly journals The Impact of Public Investment on Economic Growth in Pakistan

2006 ◽  
Vol 45 (1) ◽  
pp. 87-98 ◽  
Author(s):  
Ejaz Ghani ◽  
Musleh-ud Din
Keyword(s):  
Economic Growth ◽  
Public Investment ◽  
Private Investment ◽  
Jel Classification ◽  
Vector Autoregressive ◽  
Public Consumption ◽  
Strong Inference ◽  
The Impact ◽  
Theoretical Considerations

This paper explores the role of public investment in the process of economic growth, in the context of Pakistan’s economy, using the vector autoregressive approach (VAR). Based on theoretical considerations, the model also includes private investment and public consumption besides public investment. The results show that growth is largely driven by private investment and that no strong inference can be drawn from the effects of public investment and public consumption on economic growth. JEL Classification: E2, 04. Keywords: Public Investment, Economic Growth.

scholarly journals Orçamento público, ajuste fiscal e administração consensual

2016 ◽  
Vol 1 (1) ◽  
Author(s):  
Jessé Torres Pereira Junior ◽  
Thaí­s Boia Marçal
Keyword(s):  
Public Administration ◽  
Fundamental Rights ◽  
Public Budget ◽  
Fiscal Responsibility ◽  
Fiscal Adjustment ◽  
Fiscal Adjustments ◽  
The Right

<p><strong>ORÇAMENTO PÚBLICO, AJUSTE FISCAL E ADMINISTRAÇÃO CONSENSUAL </strong></p><p><strong>Resumo:</strong> O estado pós-moderno compromete-se a efetivar os direitos fundamentais que a Constituição assegura aos cidadãos, sem exclusão, entre eles o direito à boa administração pública. É instrumento de conformação desta, no direito público contemporâneo brasileiro, a Lei de Responsabilidade Fiscal, cuja edição completa 15 anos e em face da qual se promovem ajustes conciliadores das leis orçamentárias com a realidade socioeconômica em permanente mutação. Ajustes que devem resultar do diálogo entre as instituições representativas da sociedade, de sorte a conduzir a escolhas que serão tanto mais eficientes quanto pautadas na consensualidade.</p><p><strong>Palavras-chaves:</strong> Orçamento público. Ajuste fiscal. Administração pública dialógica. Lei de Responsabilidade Fiscal.</p><p><strong>PUBLIC BUDGET, FISCAL ADJUSTMENT AND CONSENSUAL ADMINISTRATION</strong></p><p><strong>Abstract:</strong> The postmodern state is guided to achieve fundamental rights, including the right for a good public administration. In such purpose, and to enable respect for fiscal responsibility law, it is imperative to carry out fiscal adjustments that allow the adequacy of budget laws to contemporaneous not stable socioeconomic contexts. These adjustments ought to be based on dialogue among institutions, in order to improve efficient choices grounded on consensualism.</p><p><strong>Keywords:</strong> Public budget. Fiscal adjustment. Dialogic public administration. Fiscal responsibility law.</p><p><strong>Data da submissão:</strong><strong> </strong>26/03/2016<strong>                   Data da aprovação: </strong>06/04/2016<strong></strong></p>

scholarly journals Inversión Pública y sus implicancias en el desarrollo socioeconómico en el Departamento de Puno Perú.

2016 ◽  
Vol 18 (3) ◽  
Author(s):  
Alcides Huamaní Peralta
Keyword(s):  
Economic Development ◽  
Local Governments ◽  
Public Management ◽  
Econometric Model ◽  
Public Investment ◽  
Private Investment ◽  
Regional Government ◽  
The Public ◽  
Socio Economic Development ◽  
National Governments

<p>Se pretende explicar y analizar las implicancias que ha tenido la inversión pública de los gobiernos locales y el gobierno regional en el Departamento de Puno sobre el desarrollo socioeconómico; en los últimos años<a href="file:///C:/Users/FORTUNATO/Desktop/aptos%20ria%2018n3/8-%20INVERSI%C3%92N%20P%C3%99BLICA%20alcides%20huamani%20peralta.doc#_msocom_1">]</a> , la gestión pública es cuestionado principalmente porque éstas no han mostrado mejoras significativas en el desarrollo socioeconómico a pesar del incremento de recursos. Se ha considerado información anual del 2007 al 2014, referida a gobiernos subnacionales; para el primer objetivo se ha realizado la caracterización de gobiernos locales y gobierno regional; para el segundo objetivo, se analiza las implicancias que tiene la inversión pública sobre el desarrollo socioeconómico, mediante un modelo econométrico. Se ha caracterizado a la gestión de los gobiernos locales y el gobierno regional, encontrando problemas en la ejecución de inversiones, como la falta de calidad en proyectos de inversión, hechos de corrupción, limitadas capacidades de autoridades y funcionarios, y problemas de transparencia y procesos participativos; se ha evidenciado que las inversiones públicas tienen efectos muy limitados o marginales sobre el desarrollo socioeconómico en nuestro departamento, esto se infiere de los resultados del modelo econométrico aplicado. Conforme a la evidencia empírica, los gobiernos subnacionales no han generado mejoras significativas en las condiciones de vida de la población y condiciones favorables para el sector privado.</p><p> </p><p> </p><p> </p><p><strong> </strong></p><p align="center"><strong>ABSTRACT.</strong></p><p><strong> </strong></p><p>We  try to explain and analyze the implications that had the public investment of local governments and the regional government in the Department of Puno about the socio-economic development; in recent years, was questioned mainly because they have not shown significant improvements in the socio-economic development despite the increase of resources. It has been considered annual information from 2007 to 2014, referring about sub-national governments; for the first objective it has been taken characterization of local government and regional government; for the second objective, it has been analized the implications that has the public investment on the socio-economic development, using an econometric model. It has been characterized the management local governments and regional government, finding problems in the execution of investments, such as the lack of quality in investment projects, acts of corruption, limited capacities of authorities and civil servants, and problems of transparency and participatory processes;  this shows that public investments have very limited or marginal effects on the socio-economic development in our department, this is the conclussion  from the results of the applied econometric model. According to the empiric evidence, sub-national governments have not generated significant improvements in population’s  living conditions and favourable conditions for the private sector.</p><p> </p><p> </p><p>Key words: public management, private investment, standard of living.<strong></strong></p><p> </p><p> </p><p> </p><p> </p>

scholarly journals Impact of Public Debt, Deficit and Debt Financing on Private Investment in a Large Country: Evidence from the United States

2020 ◽  
Vol 6 (2) ◽  
pp. 139-161
Author(s):  
Amir Kia
Keyword(s):  
Public Debt ◽  
Public Investment ◽  
Government Expenditure ◽  
Private Investment ◽  
Adjustment Costs ◽  
The United States ◽  
Direct Impact ◽  
Large Country ◽  
Long Run ◽  
Short Run

This paper analyses the direct impact of fiscal variables on private investment. The current literature ignores one or more fiscal variables and, in many cases, the foreign financing of debt. In this paper, an aggregate investment function for an economy in which firms incur adjustment costs in their investment process is developed. The developed model incorporates the direct impact of government expenditure, public debt and investment, deficits and foreign-financed debt on private investment. The model is tested on US data. It is found that public investment does not have any impact on private investment, but government expenditure, deficit, debt and foreign-financed debt crowd out private investment over the long run. However, deficit crowds in the private investment over the short run.

scholarly journals Decision between Public Investment and Public Consumption: A Policy Analysis

2020 ◽  
Vol V (I) ◽  
pp. 131-152
Author(s):  
Muhammad Raashid ◽  
Abdul Saboor ◽  
Aneela Afzal
Keyword(s):  
Public Investment ◽  
Policy Decision ◽  
Dynamic Stochastic General Equilibrium ◽  
Dsge Model ◽  
Structural Unemployment ◽  
Government Investment ◽  
Long Run ◽  
Public Consumption ◽  
Dynamic Stochastic ◽  
Best Fit

This study aims to draw a policy decision between public investment and public consumption by designing a Dynamic Stochastic General Equilibrium (DSGE) model for the economy of Pakistan which is experiencing persistent shocks that have stressed the growth pattern. The DSGE model has a microeconomic foundation and justifies locus critics by envisioning an artificial economy. The model is evaluated and set to best fit for data through an exercise of moment matching. Government consumption shocks and Government Investment shocks are used to trace out the behaviour of the economy. The analysis confirms that Pakistan economy could go for capital formation through public investment but it results in compromised public consumption and structural unemployment. It is further concluded that the export base and long-run public investment programs are needed to achieve sustainable development in the economy.

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