Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Posts Tagged ‘Fiscal Policy’

Propping Up the Chinese Economy: Credit versus Fiscal Stimulus  

Posted by hkarner - 14. Dezember 2017

December 13, 2017

Credit booms are addictive. Credit supports growth and the perception of wealth. Yet credit booms are risky, and are often followed by financial busts and economic slowdowns. The challenge is taming credit without hurting growth.

Mainland China is experiencing a major credit boom. As of end-2016, total social financing—a broad measure of credit—exceeded 200 percent of GDP. The credit-to-GDP gap—a measure of financial vulnerability—is the second highest among 44 economies covered by BIS (after Hong Kong SAR).

How did credit growth contribute to output growth in China? Has credit allocation worsened as the economy became saturated with credit? Can output growth be supported by other means, such as fiscal stimulus? Den Rest des Beitrags lesen »

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Five Keys to a Smart Fiscal Policy

Posted by hkarner - 20. April 2017

By Vitor Gaspar and Luc Eyraud, IMF Blog, April 19

We live in a world of dramatic economic change. Rapid technological innovation has fundamentally reshaped the way we live and work. International trade and finance, migration, and worldwide communications have made countries more interconnected than ever, exposing workers to greater competition from abroad. While these changes have brought tremendous benefits, they have also led to a growing perception of uncertainty and insecurity, particularly in advanced economies.

Today’s conditions require new, more innovative solutions, which the IMF calls smart fiscal policies. By smart policies we mean policies that facilitate change, harness its growth potential, and protect people who are hurt by it. At the same time, excessive borrowing and record levels of public debt have limited the financial resources available to government. So, fiscal policy must do more with less. Fortunately, researchers and policy makers are realizing that the fiscal tool kit is broader and the tools more powerful than they thought. Five guiding principles sketch the contours of these smart fiscal policies, which are described in chapter one of the IMF’s April 2017 Fiscal Monitor.

1.Fiscal policy should be countercyclical Den Rest des Beitrags lesen »

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The Return of Fiscal Policy

Posted by hkarner - 27. September 2016

Photo of Nouriel Roubini

Nouriel Roubini

Nouriel Roubini, a professor at NYU’s Stern School of Business and Chairman of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

SEP 26, 2016 Project Syndicate

NEW YORK – Since the global financial crisis of 2008, monetary policy has borne much of the burden of sustaining aggregate demand, boosting growth, and preventing deflation in developed economies. Fiscal policy, for its part, was constrained by large budget deficits and rising stocks of public debt, with many countries even implementing austerity to ensure debt sustainability. Eight years later, it is time to pass the baton.

As the only game in town when it came to economic stimulus, central banks were driven to adopt increasingly unconventional monetary policies. They began by cutting interest rates to zero, and later introduced forward guidance, committing to keep policy rates at zero for a protracted period. Den Rest des Beitrags lesen »

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Designing fiscal policy for steady, enduring growth

Posted by hkarner - 11. Dezember 2015

Marco Buti, Vitor Gaspar 10 December 2015, voxeu

Director General, DG Economic and Financial Affairs, European Commission

Director of the Fiscal Affairs Department, International Monetary Fund

Against this background of heightened risks and uncertainties, constrained monetary policy, and limited budgetary space, how can fiscal policy contribute to steady and enduring growth? Here, we argue that fiscal stabilisation through automatic stabilisers can play a prominent role.  Den Rest des Beitrags lesen »

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A Balance-Sheet Approach to Fiscal Policy

Posted by hkarner - 18. August 2015

AUG 18, 2015 0, Project Syndicate

WASHINGTON, DC – Everyone is talking about debt, citing huge nominal figures that strongly affect public-policy debates worldwide. But all debt is not created equal.

For starters, when it comes to public debt, there is a big difference between the gross and net figures. While Japan’s gross public debt, for example, is a massive 246% of GDP, the net figure, accounting for intra-government debts, is 127% of GDP.

Moreover, what should really matter about a country’s public-debt burden is the expected annual cost of servicing it. As Daniel Gros recently pointed out, debt that can be rolled over indefinitely at zero interest rates is no debt at all. This is an extreme example; but the closer a fixed interest rate gets to zero, and the longer the maturity becomes, the lower the burden of the stock of debt.

Although Greece’s public debt amounts to about 175% of GDP, low interest rates – which are fixed for a large proportion of it – and long maturities mean that it may be more manageable than it seems. Greece’s ratio of public-debt service to GDP is similar to that of Portugal, or even Italy. Indeed, that is why the latest deal with Greece, which entails even more bailout funds, could work, as long as the country is accorded the debt reprofiling that it needs to reverse the decline of its GDP, reduces its primary surpluses, and pursues balance-sheet-strengthening reforms. Den Rest des Beitrags lesen »

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Fiscal policy coordination: a necessary step for the Euro Zone recovery

Posted by hkarner - 15. Februar 2015

Authors: Roberto Tamborini & Andrea Boitani  ·  February 12th, 2015  ·  REGE EconoMonitor

On January 21st, 2015, the strict monetary austerity regime of the Euro Zone (EZ) was officially abandoned as the European Central Bank (ECB) launched the Quantitative Easing (QE) programme of State bonds purchases on secondary markets. The European Court of Justice’s attorney general has certified that the QE programme is not in contrast with the EZ Treaties, but it certainly breaches the established interpretation regarding the latitude of the ECB room of manoeuvre within its mandate. In November 2014 the newly appointed European Commission has launched an investment programme, the most significant impact of which is the message that, in principle, there can be a common pool of resources for governments to spend off the books of the Excessive Deficit Procedure. Also, the “flexibility” issue raised by Italy and France regarding timing and extent of application of the fiscal rules vis-à-vis contingent macroeconomic conditions is no longer taboo, and a few steps forward have been made in that direction (albeit the pro-cyclical maze of rules rests untouched). And of course, a major political change took place inGreece which may affect the whole ofEurope. These seeds of regime shift come from overwhelming pressure of economic, social and political crises all acrossEurope, a widening divergence of policy strategies with major partners and official institutions outside the EZ, and  the rapid decline of support for the austerity doctrine from leading academic schools outside the “German block”. Den Rest des Beitrags lesen »

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Converging world: Countries’ fiscal policies are becoming more similar

Posted by hkarner - 16. November 2012

Date: 15-11-2012
Source: The Economist: Buttonwood

ALL around the developed world politicians are struggling to figure out the best way of balancing their budgets, at least over the medium term. But is it easier to get spending down or taxes up?

The charts show the recent record on tax and spending for America, the euro zone and the OECD as a whole. The spending numbers are slightly more variable and consistently higher than the tax take. Both tax and spending are subject to cyclical effects. Spending has a cyclical component because of the cost of unemployment benefit as well as the use of deliberate Keynesian stimulus. On the tax side revenue from corporate profits and capital gains falls sharply during downturns, although consumption taxes are more stable.

What is striking is the narrow range within which the tax take has moved. Since 1994 euro-zone taxes have not been below 44.6% or above 46.6% of GDP. In America the total tax take has been between 30% and 35% of GDP since 1970. Such stability may be partly due to efforts by reforming governments of the 1980s and 1990s to reduce taxes. But it raises the question of whether there might be some upper limit to the amount of tax governments can grab.

In a globalised economy people and capital can move to escape high-tax regimes—France’s new 75% top income-tax rate comes to mind—or base their operations in low-tax places such as Ireland. Tax competition is clearly not the only thing at work; otherwise it would not be possible for the euro zone to have a tax take 14 percentage points higher than America’s. The big difference between the two is consumption taxes; Europe has hefty value-added tax and America has no national sales tax. Europeans are unlikely to migrate to escape VAT.

Nevertheless, there are signs of a narrowing in the spread between the highest- and lowest-taxing jurisdictions. In 1994 the five highest tax regimes in the OECD had an average tax take of 55.7%; this year, it is 53.6%. The five lowest tax regimes in 1994 had an average take of 30.5%; now it is 33%.

Countries do not “compete” on government spending. But if there is a tax constraint on policy you would expect that high-spending governments would eventually have to cut their coat to meet their cloth. The six highest-spending countries of 1994 (France and Norway were tied for fifth place) were spending 59.4% of GDP; this year they are spending just 52.8%. France is the only one of the group with a higher tax take than in 1994.

By contrast low-spending (and taxing) governments have faced no such constraint. The five lowest spenders of 1994 have seen their average outlays rise from 32.7% to 36.5% of GDP. In short, fiscal policies are converging rather than diverging.

Much economic analysis of tax regimes focuses on the optimal system: the maximum marginal rate, the balance between taxes on consumption and income, the need to reduce loopholes and so on. When it comes to discussing the overall tax take from GDP the debate tends to be ideological. Conservatives favour a smaller state on grounds of both liberty and economic efficiency. By destroying the incentives to work, welfare states weaken growth, they say.

In contrast Peter Lindert of the University of California, Davis claims that historical analysis suggests no link between high social spending and growth rates. A rough-and-ready look at the past 18 years certainly provides no clear pattern. The low spenders of 1994 included Japan and Switzerland, neither of which have grown very rapidly since. The low-spending group also included South Korea, where GDP has more than doubled since 1994. In that time, however, the country has also seen the largest rise in spending relative to GDP of all OECD nations.

A reasonable guess is that nations will continue to converge in their fiscal policies. High-spending Europe is undergoing austerity; lower-spending countries are grappling with the costs of an ageing population. In America, as national politicians bicker, state and local authorities face huge pension-fund deficits; higher taxes are likely to be part of the answer.

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A bitter fallout from a hasty union

Posted by hkarner - 20. Juni 2012

Date: 20-06-2012
Source: The Financial Times By Martin Wolf

“Marry in haste; repent at leisure.” Full of impetuous ardour, Germany’s partners seduced – some might say blackmailed – the continent’s most powerful economy into sacrificing monetary independence two decades ago. But, as the prince in Giuseppe di Lampedusa’s Leopard remarked of his own indissoluble union: “Fire and flames for a year; ashes for thirty.” Now is the eurozone’s time of ashes.

Heads of government of the group of 20 leading countries who do not come from the eurozone must feel like marriage counsellors trying to reconcile partners far too different in character and values to live happily together. The careless lending before 2007 aggravated the danger. That carelessness, exacerbated by the notion that the marriage made all equal, has made the crisis far worse.
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How to Get the Balance Right: Fiscal Policy at a Time of Crisis

Posted by hkarner - 11. Mai 2012

Authors: Anders Borg & Christine Lagarde · May 7th, 2012 · IMF Direct

Last autumn was a turbulent time for Europe. The debt crisis deepened and financial markets became embroiled in turmoil, driven by fears of widespread restructuring of public debt. The crisis has harmed growth, increased unemployment, and left a large number of people less protected.

We are now seeing some signs of stabilization. Most countries are reducing their deficits and even if debt ratios are still rising, the return back to fiscal health has begun. (Wo leben die? In Washington! hfk)

The International Monetary Fund and the Swedish Ministry of Finance are hosting an international conference in Stockholm on May 7-8, with the purpose of sharing knowledge and providing guidance on the best way to achieve fiscal consolidation, and on the role that effective fiscal policy frameworks and institutions can play in this endeavor.

Learning from experience Den Rest des Beitrags lesen »

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Why the Latest Euro Zone Debt-Crisis Agreement Shows How Europe Just Doesn’t Get It

Posted by hkarner - 2. Februar 2012

Date: 01-02-2012
Source: TIME By MICHAEL SCHUMAN

I just landed in Rome for some on-the-ground reporting on the latest twists and turns in the euro zone debt crisis, and I immediately got some sound insights from our reporter here, Stephan Faris. Stephan watches the situation in Italy more closely than I do, and he makes the point that Rome simply would not pursue any meaningful economic reform if Italy got bailed out or received more help from the European Union. The pressure of the crisis, he contends, is necessary to force Italy’s politicians to implement pro-growth reforms and reduce debt. Without it, Italy would simply continue on as usual, no matter what poor growth the economy may suffer, or how many young people are unable to find jobs. The entrenched interests are simply too powerful, the politicians too wary of taking unpopular measures. What most people don’t understand about the euro zone, Stephan explained, is that reform is impossible without the crisis. Den Rest des Beitrags lesen »

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