public employment and the business cycle we add a public employment sector to the basic search and matching model in order to study the business cycle impact of public wage and employment policies the government is assumed to follow exogenous rules for public wages and employment calibrated to match some cyclical features of us policies these features include a positive public wage premium and mildly procyclical public wages and employment we find that the presence of the public sector increases the volatility of employment and output

government size and macroeconomic stability abstract we analyze the effects of government size on output variability in the context of a rbc model in which government size is parameterized by the income tax rate and the share of government purchases in output the model implies that i income taxes are destabilizing and ii for most specifications considered government purchases are stabilizing we compare those predictions with the results of simple cross country regressions using data for 22 oecd countries the estimated relationship between empirical indicators of government size and measures of gdp variability appears far stronger than the model predicts and often has the opposite sign

conservation agriculture organic marketing and collective action in the honduran hillsides conservation agriculture ca is often perceived to provide win win outcomes for farmers leading to reduced erosion and off site sedimentation as well as improved soil fertility and productivity however adoption rates for ca in many regions of the world remain below expected levels this article looks at the effects of participation in organic markets and farmers organizations on the adoption of soil conservation practices based on original survey data from 241 small scale farm households in honduras we find that both participation in organic markets and farmer based groups have positive effects on the number of soil conservation practices adopted the results indicate that besides supply oriented policy measures such as the provision of technical assistance and extension demand related factors are likely to play an important role in sustainable soil management demand oriented policy measures include support for labeling initiatives and consumer education to facilitate value added product differentiation and market segmentation jel classifications q01 q12 q13 q16

the case for restricting fiscal policy discretion this paper studies the effects of discretionary fiscal policy on output volatility and economic growth using data for 91 countries we isolate three empirical regularities 1 governments that use fiscal policy aggressively induce significant macroeconomic instability 2 the volatility of output caused by discretionary fiscal policy lowers economic growth by more than 0 8 percentage points for every percentage point increase in volatility 3 prudent use of fiscal policy is explained to a large extent by the presence of political constraints and other political and institutional variables the evidence in the paper supports arguments for constraining discretion by imposing institutional restrictions on governments as a way to reduce output volatility and increase the rate of economic growth

planning to cheat eu fiscal policy in real time using real time data from europe s stability and convergence programs we explore how fiscal plans and their implementation in the eu are determined we find that 1 implemented budgetary adjustment falls systematically short of planned adjustment and this shortfall increases with the projection horizon 2 variability in the eventual fiscal outcomes is dominated by the implementation errors 3 there is a limited role for traditional political variables 4 stock flow adjustments are more important when plans are more ambitious and 5 most importantly both the ambition in fiscal plans and their implementation benefit from stronger national fiscal institutions we emphasize also the importance of credible plans for the eventual fiscal outcomes roel beetsma massimo giuliodori and peter wierts

combining household income and asset data to identify livelihood strategies and their dynamics abstractcurrent approaches to identifying and describing rural livelihood strategies and household movements between strategies over time in developing countries are imprecise here we i present a new statistical quantitative approach combining income and asset data to identify household activity choice variables characterise livelihood strategy clusters and analyse movements between strategies and ii apply the approach using an environmentally augmented three wave household n 427 level panel dataset from nepal combining income and asset data provides a better understanding of livelihood strategies and household movements between strategies over time than using only income or asset data most households changed livelihood strategy at least once over the two three year periods a common pathway out of poverty included an intermediate step during which households accumulate assets through farming petty trading and migratory work

environmental policy and the economic downturn this paper considers how environmental policies should respond to macroeconomic downturns it first explores the implications of the global economic downturn of 2008 09 for environmental policies focusing in particular on the example of action against climate change the arguments for and against activist fiscal policies in general are then reviewed and the case made that a demand induced downturn provides a very good opportunity to undertake a necessary step change in the public spending component of environmental policies and to start working through a backlog of public investment to improve the environment fiscal policy should be used to improve the allocation of resources across time and space recent fiscal stimuli are considered in the light of this discussion it is also argued that there is little cause to delay the introduction of price signals to internalise environmental externalities but the levels at which such signals should be set requires careful analysis changes over the business cycle may be warranted depending on the nature of the environmental externality and the cause s of the business cycle in question

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

the macroeconomic effects of fiscal rules in the us states abstract fiscal policy restrictions are often criticized for limiting the ability of governments to react to business cycle fluctuations and consequently the adoption of quantitative restrictions is viewed as inevitably leading to increased macroeconomic volatility in this paper we use data from 48 us states to investigate how budget rules affect fiscal policy outcomes our key findings are that 1 strict budgetary restrictions lead to lower policy volatility i e less aggressive use of discretion in conducting fiscal policy and 2 fiscal restrictions reduce the responsiveness of fiscal policy to output shocks these two results should have opposite effects on output volatility while less discretion should reduce volatility less responsiveness of fiscal policy might amplify business cycles we provide empirical support for the first effect restrictions by reducing discretion in fiscal policy can reduce macroeconomic volatility

household income strategies and natural disasters dynamic livelihoods in rural nicaragua this paper assesses the impact of hurricane mitch on livelihood strategies of rural households in nicaragua through destruction or distress sales of productive assets a hurricane or another natural hazard could induce people with relatively remunerative livelihoods to choose more defensive strategies which allow them to survive but at a permanently lower welfare level than before using panel data from before and after hurricane mitch we find that livelihood strategies can be grouped into three welfare categories annual farming and farm employment generate low incomes whereas nonfarm wage employment and livestock farming result in relatively high incomes perennial farming nonfarm self employment and annual cropping with nonfarm employment take an intermediate position high welfare strategies were associated with high levels of capital and the number of people involved was very similar between different years suggesting that households following low welfare strategies were trapped in poverty however many households moved actively between strategies of different welfare levels this indicates that there was no absolute poverty threshold but also that being able to initiate a relatively profitable livelihood strategy was no guarantee that this strategy could be maintained there is no evidence that hurricane mitch affected livelihood strategy transitions livelihood mobility was similar for households inside and outside mitch affected areas

debt sustainability and procyclical fiscal policies in latin america the computation of structural primary balances for the nine main latin american countries and the comparison of their changes with their cyclical position during the period 1981 2004 confirm that fiscal policy is procyclical in the region from this evidence the paper shows strong evidence that the fiscal behavior is closely linked to the financial vulnerability position of the economies and in particular to the perception on the sustainability of public debt the current threshold balance defined as the primary balance that would render the debt stable under the existing economic and financial conditions is used as our gauge for measuring debt sustainability concerns at each point in time the empirical analysis reveals that fiscal stance tightens when the perceptions of debt sustainability worsen that the impact is stronger the less sustainable debt is perceived and that when controlling for these effects fiscal policy loses its procyclical stance the results are robust to different specifications and estimation methods

output fluctuations and fiscal policy u s state and local governments 1978 1994 abstract we study the cyclical properties of u s state and local government fiscal policy the budget surpluses of both are procyclical over short and medium term horizons procyclical surpluses are the result of strongly procyclical revenue and weakly procyclical expenditure these results hold whether aggregate u s wide fluctuations are controlled for or not federal grants to state and local governments are procyclical but this is due to aggregate output fluctuations with respect to state level output fluctuations federal grants are countercyclical the budget surpluses of trust funds and utilities are also procyclical but there is no evidence that this effect is stronger in states where balanced budget rules are tighter the cyclical patterns of state and local budget surpluses are affected by various political institutions for example budget surpluses are less procyclical in conservative states in an election year that occurs in good times state governments refrain from accumulating a larger surplus in bad times no such asymmetry between election and non election years is apparent

monetary and fiscal policy interactions in a micro founded model of a monetary union abstract this paper analyzes in detail the mechanisms behind fiscal stabilization policy and the role of policy commitment in a micro founded new keynesian model of a two country monetary union which is hit by supply shocks we also explore the determinants of the gains from fiscal stabilization while monetary policy with identical union members is concerned with stabilizing the union wide economy fiscal policy aims at stabilizing inflation differences and the terms of trade besides exploring optimal policies we also consider monetary and fiscal rules we study these rules both under coordination and non coordination by the fiscal authorities

policies for sustainable development in the hillside areas of honduras a quantitative livelihoods approach in this article we use data for 376 households 1 066 parcels and 2 143 plots located in 95 villages in the hillside areas in honduras to generate information needed by decision makers to assess the needs and opportunities for public investments and design policies that stimulate natural resource conservation we develop a quantitative livelihood approach using factor and cluster analysis to group households based on the use of their main assets this resulted in seven household categories that pursue similar livelihood strategies we use a multinomial logit model to show that livelihood strategies are determined by comparative advantages as reflected by a combination of biophysical and socioeconomic variables while 92 of the rural hillsides population in honduras lives on us 1 00 capita day or less households that follow a livelihood strategy based on basic grain farming are the poorest because they often live in isolated areas with relatively poor agro ecological and socioeconomic conditions opportunities for off farm work tend to be limited in these areas and household strategies that combine on farm work with off farm work earn higher incomes per capita incomes can be increased by improving road infrastructure widening access to land policies that reduce household size and dependency ratios and adoption of sustainable land management technologies that restore soil fertility we used probit models to show that the latter can be promoted by agricultural extension programs and land redistribution investments in physical assets should be directed toward households that pursue livelihood strategies based on off farm employment or coffee production while agricultural training programs are best focused on livestock producers

quantifying rural livelihood strategies in developing countries using an activity choice approach this article uses a quantitative activity choice approach based on identification of activity variables and application of latent class cluster analysis to identify five major rural livelihood strategies pursued by households n 576 in bolivia nepal and mozambique income sources and welfare outcomes are compared across strategies and household differences in asset holdings are analyzed using multinomial logit regression findings reveal that income diversification is the norm that a higher degree of specialization does not characterize more remunerative livelihood strategies that nonfarm income significantly contributes to higher income earnings that environmental reliance does not vary across strategies and that small scale farmers are the largest and poorest livelihood group some livelihood strategies are superior to all other strategies in terms of income earned access to more remunerative livelihood strategies is determined by land ownership education and ethnic affiliation finally the article also highlights that additional work is required to determine the most suitable methods for livelihood strategy identification

moving up or moving out insights into rural development and poverty reduction in senegal summary while worldwide progress in poverty reduction has been impressive sub saharan africa is lagging behind with slow growth and a high poverty headcount ratio there are fierce debates on how sub saharan africa can foster pro poor growth and the role of agriculture and small versus large scale farming in poverty reduction we contribute to this debate with micro economic empirical evidence from the senegal river delta an area that recently experienced rapid rural development we use household survey data from two panel rounds in 2006 and 2013 and a cluster analysis to investigate livelihood income and poverty dynamics in the region we find that with 4 3 annual growth in average household income 29 5 percentage points poverty reduction and 4 2 percentage points inequality reduction over the period 2006 13 development in the senegal river delta region has been remarkably pro poor income growth and poverty reduction have been most impressive among households moving into wage employment on large scale horticultural export farms and in an emerging service sector income growth in small scale agriculture and non farm businesses has been more modest but has affected the largest number of households transformation in both farm and non farm sectors has driven rural development in the senegal river delta region and investments in both large and small scale agriculture have contributed importantly to household income growth and poverty reduction our findings imply that foreign investments in large scale commercial and export oriented farming can trigger pro poor growth directly through employment effects and indirectly through investment and consumption linkages with the small scale farm and non farm sector

aggregate instability under balanced budget consumption taxes a re examination we re examine the destabilizing role of balanced budget fiscal policy rules based on consumption taxation using a one sector model with infinitely lived households we consider a specification of preferences derived from jaimovich 2008 14 and jaimovich and rebelo 2009 15 which is flexible enough to encompass varying degrees of income effect when the income effect is not too large we show that there exists a laffer curve which explains the multiplicity of steady states and that non linear consumption taxation may destabilize the economy promoting expectation driven fluctuations if the elasticity of intertemporal substitution in consumption is sufficiently larger than one and the tax rate is counter cyclical with respect to consumption numerical illustrations also show that consumption taxation may be a source of instability for most oecd countries for a wide range of structural parameters configurations we finally prove the robustness of our conclusions if we consider a discrete time setup

household strategies and rural livelihood diversification this article reviews the recent literature on diversification as a livelihood strategy of rural households in developing countries with particular reference to sub saharan africa livelihood diversification is defined as the process by which rural families construct a diverse portfolio of activities and social support capabilities in order to survive and to improve their standards of living the determinants and effects of diversification in the areas of poverty income distribution farm output and gender are examined some policy inferences are summarised the conclusion is reached that removal of constraints to and expansion of opportunities for diversification are desirable policy objectives because they give individuals and households more capabilities to improve livelihood security and to raise living standards

hungarian agriculture a model for the socialist world abstract hungary s status as a model in agriculture is examined in terms of its economic social and political performance its planning and organizational components and the contextual factors affecting its transferability in economic and social performance the hungarian strategy compares favourably with the rest of eastern europe and the ussr planning and institutional factors contributing to this performance include the new economic mechanism planning approach autonomous agricultural producers co operatives new structures for diffusion of technology and integration of household producers into the commodity system while the transferability of the model remains doubtful due to factors such as size technical base and political choices increased participation in the world economy may force the ussr and the rest of eastern europe into reforms bearing some resemblance to those in hungary

fatal fluctuations cyclicality in infant mortality in india this paper investigates the impact of aggregate income shocks on infant mortality in india and investigates likely mechanisms a recent oecd dominated literature reports the provocative finding that mortality at most ages is pro cyclical similar analyses for poorer countries are scarce and both income risk and mortality risk are greater in poor countries this paper uses data and methods designed to avoid some of the specification problems in previous studies and it explores mechanisms and extensions that have not been previously considered it uses individual data on infant mortality for about 150 000 children born in 1970 1997 merged by cohort and state of birth with a state panel containing information on aggregate income identification rests upon comparing the effects of annual deviations in income from trend on the mortality risks of children born at different times to the same mother conditional upon a number of state time varying covariates including rainshocks and state social expenditure rural infant mortality is counter cyclical the elasticity being about 0 33 this is despite the finding that relatively high risk women avert birth or suffer fetal loss in recessions it seems in part related to recessions stimulating distress labor amongst mothers in contrast to the case in richer countries where they discourage labor market participation health care seeking declines in recessions and this appears to be related to the opportunity cost of maternal time disaggregation reveals that the average results are driven by rural households in which the mother is uneducated or had her first birth in teenage and that it is only girls that are at risk boys are protected from income shocks exposure to poor conditions in the fetal and neonatal period appears to have a larger effect on infant mortality than similar exposure in the postneonatal period

cross country evidence on the link between volatility and growth this paper presents empirical evidence against the standard dichotomy in macroeconomics that separates growth from the volatility of economic fluctuations in a sample of ninety two countries as well as a sample of oecd countries the authors find that countries with higher volatility have lower growth the addition of standard control variables strengthens the negative relationship the authors also find that government spending induced volatility is negatively associated with growth even after controlling for both time and country fixed effects copyright 1995 by american economic association

average tax rate cyclicality in oecd countries a test of three fiscal policy theories this paper investigates the cyclical properties of the average effective tax rate in 26 oecd countries over 1965 2003 in order to test the validity of three theories of fiscal policy i the standard keynesian theory which recommends that tax policy should be counter cyclical ii the tax smoothing hypothesis which implies that changes in gdp should be uncorrelated with tax rates and iii the positive theory of battaglini and coate 2008 which predicts that the average tax rate should be negatively correlated with gdp our main finding is that the correlations of tax rates with cyclical gdp are generally quite small and statistically indistinguishable from zero this finding is quite robust and is more consistent with the implications of the tax smoothing hypothesis than either the recommendations of the standard keynesian model or the predictions of battaglini and coate s theory

fiscal expansions unemployment and labor force participation theory and evidence structural vars indicate that for many oecd countries labor force participation employment and the unemployment rate significantly increase following increases in government expenditures under a variety of specifications and identification schemes fiscal expansions also tend to increase real wages existing models have difficulties in generating such responses we show that the empirical regularities can be reproduced with two additions into a standard new keynesian model with matching frictions a a labor force participation choice and b workers heterogeneity

cyclical expenditure policy output volatility and economic growth this article provides an empirical assessment of the relation between the cyclicality of fiscal expenditure policy output volatility and economic growth using a cross section of 88 countries over the period 1960 to 2004 identification of the effects of endogenous cyclical expenditure policy is achieved by exploiting the exogeneity of countries political and institutional characteristics which we find to be relevant determinants of the cyclicality of expenditures there are three main results first both pro and countercyclical expenditure policy amplify output volatility much in a way like pure fiscal shocks second output volatility due to variations in cyclical and discretionary fiscal policy is negatively associated with economic growth third there is no direct effect of cyclicality on economic growth other than through output volatility

the cyclicality of consumption wages and employment of the public sector in the euro area this study empirically examines the business cycle behaviour of public consumption and its main components the public wage bill including its breakdown into compensation per employee and public employment and intermediate consumption in the euro area aggregate euro area countries and a group of selected non euro area organization for economic co operation and development oecd countries denmark sweden the uk japan and the us it looks across a large number of variables and methods using annual data from 1960 to 2005 it finds robust evidence supporting that public consumption wages and employment co move with the business cycle in a pro cyclical manner with 1 2 year lags notably for the euro area aggregate and euro area countries the findings reflect mainly the correlation between cyclical developments but also point to an important role of pro cyclical discretionary fiscal policies

the analytics of svars a unified framework to measure fiscal multipliers ticities implied by the identification schemes generate a large dispersion in the estimates of tax and spending multipliers second i estimate fiscal multipliers consistent with prior distributions of the elasticities computed by a variety of empirical strategies and by employing a simple dynamic stochastic general equilibrium model i document three findings for the u s for the period 1947 2010 first the impact tax multiplier is close to 0 second the impact spending multiplier ranges between 0 35 and 1 third there is a large uncertainty in the estimates of fiscal multipliers at longer horizons yet the probability that the spending multiplier is larger than the tax multiplier is above 0 65 for up to three years after policy interventions

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

co movement of public spending in the g7 abstract the size of government in the g7 countries in the last fifty years follows a common pattern see the left panel of fig 1 below it grows in the first three decades and then turns flat at the beginning of the nineties for all countries alike we highlight this common pattern in a dynamic factor model and argue that a satisfactory explanation for it would be desirable

why do more polarized countries run more procyclical fiscal policy abstract we study the cyclical behavior of fiscal policy to explain why some countries exhibit procyclical fiscal policy stances being expansionary in good times and contractionary in bad times we develop a model that links the polarization of preferences over fiscal spending to the procyclicality bias we then present evidence that social polarization as measured by income inequality and educational inequality is consistently and positively associated with fiscal procyclicality even after controlling for other determinants from existing theories we also find a strong negative impact of fiscal procyclicality on economic growth

the effect of government expenditure on the environment an empirical investigation abstract this paper examines the impact of government spending on the environment using a panel of 77 countries for the time period 1980 2000 we estimate both the direct and indirect effects of government spending on pollution the indirect effect in particular operates through the impact of government spending on income and the subsequent effect of the income level on pollution to take into account the dynamic nature and the potential endogeneity in the relationships examined appropriate econometric methods are used for so2 government spending is estimated to have a negative direct impact on per capita emissions while the direct effect is insignificant on co2 pollution the indirect effect on so2 is negative for low income levels and becomes positive as income increases while it remains negative for co2 for the most part of the sample range the resultant total effects follow the patterns of the indirect effects which dominate their respective direct ones for each pollutant policy implications from the results vary depending on the income level of the considered countries

procyclical government spending a public choice analysis procyclical government spending occurs when government expenditures increase at a faster rate than income in an economic upturn but fall at a faster rate in a recession voracity effects occur when competition for increased spending proves more effective as national income increases public choice theory can be applied to describe the distribution of fiscal power across different tiers of government to shed insight into competition for intergovernmental transfers politicians have electoral incentives to press for intergovernmental transfers but they also have electoral incentives to signal their ability to manage the economy with this mix of incentives the prediction is that intergovernmental transfers will be procyclical and that sub central government spending will be more procyclical than central government spending public choice analysis of pressure for increased public spending predicts a specific pattern of cyclical government spending this pattern can be observed when analyzing government expenditures in 20 oecd countries between 1995 and 2006

a political economy theory of fiscal policy and unemployment this paper presents a political economy theory of fiscal policy and unemployment the underlying economic model is one in which unemployment can arise but can be mitigated by tax cuts and public spending increases such policies are fiscally costly but can be financed by issuing government debt policy decisions are made by a legislature consisting of representatives from different political districts the theory provides a positive account of the simultaneous determination of fiscal policy and unemployment the most important implication of the theory is that debt and unemployment levels should be positively correlated some evidence in support of this prediction is provided using data from a panel of developed countries

the problem of balance in the peripheral socialist economy a conceptual note abstract the structure of the peripheral socialist economy is fundamentally distinct from the classical socialist economy upon which the planning literature has been based essentially this derives from the fact that the constraint on growth is foreign exchange and not the supply of labour or wage goods as such in consequence the possibilities for accumulation depend on international rent and depression of popular consumption does not in fact contribute much to the rate of growth three different sectors of the peripheral socialist economy can be identified and related to problems of accumulation and planning

how access to irrigation influences poverty and livelihoods a case study from sri lanka abstractthis study combines a livelihoods approach with a regression approach to quantify the effectiveness of irrigation infrastructure investment on improving people s livelihood strategies using a unique dataset based on households in southern sri lanka and a natural experimental setting we estimate from a two stage income regression model to show that irrigation access has a positive effect on income through livelihood choices we also show through qualitative approaches that factors not linked to irrigation infrastructure may contribute to changes in livelihood portfolios in addition we highlight factors that result in certain households being unable to move out of poverty despite access to the improved irrigation infrastructure

raising offtake from cattle grazed on natural rangelands in sub saharan africa a transaction cost economics approach farmers in sub saharan africa are constrained by large transaction costs associated with marketing of their livestock however transaction costs are often not taken into account in the analysis of factors hampering the development of livestock marketing in this region this article empirically measures the influence of transaction costs on the offtake from cattle grazed on natural rangelands in uganda the study is based on the monitoring of 696 cattle transactions in three districts of uganda from august 2004 to august 2005 the estimated models suggest that proportional transaction costs represented by the state of roads distance to markets and time taken to reach the market are important variables constraining market participation in order to raise offtake from the national herd it is essential to explicitly address these costs one potential solution is collective action in marketing of livestock in which proportional and fixed transaction costs are reduced and shared among the group members

the impact of r d subsidies during the crisis this study investigates the impact of r d subsidies on r d investment during the past financial crisis we conduct a treatment effects analysis and show that r d subsidies increased r d spending among subsidized small and medium sized firms in germany during the crisis years in the first crisis year the additionality effect induced by public support was however smaller than in other years this temporary decrease may be caused by an altered innovation subsidy scheme in crisis years or by a different innovation investment behavior of the subsidy recipients we do not find support for the countercyclical innovation subsidy scheme having caused the smaller additionality effect and conclude that it is likely to be driven by subsidy recipient behavior

the futile quest for a grand explanation of long run government expenditure this paper carries out a critical reappraisal of the two contending theories purporting to explain long run government spending wagner s law and different variants of the ratchet effect we analyze data spanning from the early 19 th century until the present day in sweden and the united kingdom hence in contrast to previous studies we evaluate the validity of wagner s law and the ratchet effect hypothesis over a very long time period starting at the beginning of industrialization cointegration analysis is used to investigate the long run relationships between government expenditure and gdp focusing on sub periods and structural breaks moreover we test the ratchet effect hypothesis by estimating models which allow for asymmetric adjustment according to our main results wagner s law does not hold in the long run although the data are consistent with wagner s law between roughly 1860 and the mid 1970s this can be traced to the formation of the modern public sector including the introduction of public education health care and so forth yet wagner s law did not hold during the initial industrialization phase before 1860 and in recent periods gdp only affects the government spending share when we control for population age structure finally we find some evidence of asymmetric adjustment in the uk particularly in the post wwii period however the ratchet effect is not a general cause of the growth of government spending

understanding the cyclical nature of financial intermediation costs intermediation costs i e all noninterest bank expenses are counter cyclical and their changes have significant effects at the country level however the literature is silent on what drives their cyclicality previous studies have examined costs using cross sectional or low frequency data and thus cannot capture dynamic macroeconomic effects across time we fill this gap by examining u s intermediation costs using a quarterly bank level dataset from 1993 through 2012 this data set allows for the separation of microeconomic and macroeconomic factors affecting the cyclicality of costs the analysis shows that house prices are the main driving source of this counter cyclicality because housing is used as collateral a price decline leads banks to increase their operating costs for monitoring screening and litigation costs which cause a credit crunch in the economy

estimating the permanent income elasticity of government expenditures evidence on wagner s law based on oil price shocks this paper provides instrumental variable estimates of the permanent income elasticity of government expenditures it uses annual variation in the international oil price weighted with countries average oil net export gdp shares as a plausibly exogenous source of within country variation in countries permanent income the short run estimates of the permanent income elasticity are robust across alternative specifications and are below one the estimated elasticity coefficients range between 0 3 and 0 6 and have standard errors of 0 1 and 0 4 respectively point estimates of long run elasticities are somewhat larger but still smaller than unity the investment component of government spending is found to be more elastic than the consumption component whereas elasticity differences between rich and poor countries are insignificant

tax base variability and procyclical fiscal policy in developing countries abstract based on a sample of 56 countries we show that fiscal policy in the g7 countries appears to be acyclical while fiscal policy in developing countries is procyclical i e fiscal policy is expansionary in good times and contractionary in bad times to explain this puzzle we develop an optimal fiscal policy model in which running budget surpluses is costly because they create pressures to increase public spending given this distortion a government that faces large fluctuations in the tax base as is the case for developing countries will find it optimal to run a procyclical fiscal policy

intergovernmental transfers and procyclical public spending this paper tests the predictions that i sub central government expenditures are procyclical and ii sub central government expenditures are likely to be more procyclical than central government spending the predictions are based on the importance of voracity effects and on the proposition that they are systematically more pervasive if spending is financed by intergovernmental transfers evidence from 23 oecd countries between 1995 and 2006 indicates that sub central government spending is more procyclical than central government expenditure

optimal public sector wages i build a dynamic stochastic general equilibrium model with search and matching frictions to determine the optimal public sector wage policy public sector wages are crucial in achieving efficient allocation of jobs high wages induce too many unemployed to queue for public sector jobs in turn raising unemployment the optimal wage depends on the frictions in the two sectors following technology shocks public sector wages should be pro cyclical and deviations from the optimal policy significantly increase the volatility of unemployment

the cyclical conduct of irish fiscal policy this paper provides an overview of the cyclical conduct of fiscal policy in ireland both before and during the crisis it shows that fiscal policy has been procyclical with financial shocks amplifying the fiscal cycle in addition it highlights the importance of institutional reform and outlines the case for a formal fiscal framework

cyclicality of taxes and external debt abstractin their work vegh and vuletin have shown that statutory tax rates are acyclical in developed economies and procyclical in developing ones this article extends their analysis by checking the interaction of statutory tax rates with countries external public debt in general we found that the value added tax rates are changed procyclically in both developed and developing countries i e taxes are raised in bad times and reduced in good times however when the external debt is high in the developing countries the procyclicality increases while the opposite result holds for developed economies this pattern occurs mainly in times of recession when the need for loans is the highest although we found that there was a reduction in procyclicality after the 2000s these findings pose a challenge to policy makers who should think of ways of dealing with lack of foreign funds in difficult times

fiscal policy and monetary integration in europe fiscal policy economists policy makers and the media often argue that the maastricht treaty and the stability and growth pact make it difficult for governments of emu countries to stabilize their economies with appropriate fiscal policy and to provide adequate public investment our empirical analysis offers little support to this view discretionary budget deficits have actually become more counter cyclical in emu countries after the maastricht treaty as well as in the other eu and non eu industrialized countries we study and while public investment has declined recently in emu countries a similar tendency is apparent in other countries and started well before the maastricht treaty was signed jordi gali and roberto perotti

macroeconomic stabilization in developing economies are optimal policies procyclical abstract many empirical studies provide evidence that macroeconomic policies as well as capital flows exhibit procyclical characteristics in developing economies in particular kaminsky et al 2004 when it rains it pours procyclical capital flows and macroeconomic policies nber macroeconomics annual mit press demonstrate that a large group of middle income countries run contractionary policies and experience capital flight during times of recession this paper investigates the role of international financial markets in explaining these macroeconomic policy and capital flow characteristics an optimal fiscal and monetary policy problem is formulated and solved for a small open economy that faces a country specific interest rate spread in international financial markets it is found that in the presence of the country spread optimal fiscal and monetary policies as well as capital flows are procyclical under a reasonable parametrization optimal policies and capital flows turn countercyclical in the absence of the country spread this pattern is robust to a range of alternative model specifications

state accumulation and market equilibria an application of kalecki kornai analysis to planned economies in the third world this article contains an analysis of macroeconomics and inter sectoral disequilibria in peripheral socialist economies based on an adaptation of the theories of kornai and kalecki to the planned primary export economy with a large peasant i artisan sector the origins of excess state accumulation in such economies is identified and consequences of system reforms for economic management discussed it is argued that macroeconomic policy should take into account heterogeneous production forms severe external resource constraints and social pressure for basic needs satisfaction

seigniorage and political instability the importance of seigniorage relative to other sources of government revenue differs markedly across countries this paper tries to explain this regularity by studying a political model of tax reform the model implies that countries with a more unstable and polarized political system will have more inefficient tax structures and thus will rely more heavily on seigniorage this prediction of the model is tested on cross sectional data for seventy countries the authors find that after controlling for other variables political instability is positively associated with seigniorage copyright 1992 by american economic association

fiscal policy in central and eastern europe with real time data cyclicality inertia and the role of eu accession this article evaluates the cyclicality inertia and effect of eu accession on fiscal policy in central and eastern europe cee using a real time dataset budget balances are found to react in a stabilizing way to economic activity every extra percentage point of economic growth is associated with an improvement in the budget balance of 0 3 percentage points of gross domestic product gdp and there is no evidence of an asymmetric reaction to the cycle balances are much less inert than is typically found in western europe however there is clear evidence of a fiscal loosening in the run up to eu accession this began in 1999 in larger central european countries often identified as front runners the other seven began loosening in 2001 after the nice treaty was agreed for both sets of countries this loosening cumulatively amounts to some 3 of gdp

the impact of expenditure rules on budgetary discipline over the cycle we study the impact of expenditure rules on the propensity for governments to deviate from their expenditure plans in response to surprising cyclical developments theoretical considerations suggest that due to political fragmentation in the budgetary process expenditure policy might be prone to a procyclical bias however this tendency may be mitigated by strictly enforced expenditure rules these hypotheses are tested against data from a panel of eu member states our key findings are that 1 deviations between actual and planned government expenditure tend to be positively related to output gap surprises and 2 expenditure rules reduce this procyclical bias these results are particularly pronounced when the analysis is confined to spending items with a high degree of budgetary flexibility

procyclical government spending patterns of pressure and prudence in the oecd this paper tests for differences in the cyclicality of government spending across functional categories evidence from 20 oecd countries suggests that procyclicality is more likely in smaller functional budgets but capital spending is more likely to be procyclical for the larger spending categories

the cyclical behaviour of fiscal policy evidence from the oecd this paper addresses the topic of cyclicality in scal policy in particular we show that the level of cyclicality varies across spending categories and across oecd countries in line with leading theories of scal cyclicality we show that countries with volatile output and dispersed political power are the most likely to run procyclical scal policies wage government consumption is highlighted as the most important channel by which these variables affect scal cyclicality

are windfalls a curse abstract a puzzling feature of temporary terms of trade booms is that some countries have responded to such windfalls by running current account deficits furthermore those countries that ran current account deficits failed to attain greater post boom growth rates indicating the deficits were consumed or invested in low quality projects the point we make is that the structure of the fiscal process is critical in determining outcomes if fiscal control is unitary then the consumption smoothing effect is operative and representative agent models of the current account have predictive power however if control is divided among several fiscal claimants a voracity effect appears which counteracts the consumption smoothing effect leading to a deterioration of the current account in response to a positive temporary shock we model the interaction among fiscal claimants as a dynamic game and show that in equilibrium aggregate appropriation increases more than the windfall itself this results in a deterioration of the current account we also show that all the windfall is dissipated with the country experiencing no increase in welfare 1998 elsevier science b v

was this time different fiscal policy in commodity republics abstract we revisit the issue of fiscal procyclicality in commodity rich nations commodity republics in the nomenclature of this paper since commodity prices are plausibly a main driver of fiscal policy outcomes in these countries we focus on the behavior of fiscal variables across the commodity cycle in contrast to behavior across the output cycle which has been the main focus of earlier research on fiscal procyclicality we present evidence of reduced fiscal policy procyclicality in a number of countries our empirical results suggest that improvements in institutional quality have led to a more countercyclical fiscal policy stance in a number of countries the presence of fiscal rules also seems to have made a difference countries that use them displayed a larger shift toward fiscal counter cyclicality between the two episodes

on constraining fiscal policy discretion in emu we review the theoretical and empirical literature on the benefits and costs of imposing restrictions on fiscal policy we emphasize that the arguments in favour of restricting discretion of fiscal policy go beyond the notion of avoiding unsustainable budgetary plans that can lead to pressure on the central bank restrictions on fiscal policy can also be justified on the grounds that discretionary changes in spending or taxes can lead to unnecessary volatility in output and lower economic growth empirically there is evidence that implicit constraints on governments can be as effective as explicit constraints i e rules from the analysis in emu countries in the last 10 years we conclude that there has been a significant change in the conduct of fiscal policy in terms of increased discipline and less use of discretion however since 1999 there are clear signs of fatigue in this process as previous trends have either stopped or even reversed copyright 2003 oxford university press

policy volatility institutions and economic growth abstract in this paper we present evidence that policy volatility exerts a strong and direct negative impact on growth using data for 93 countries we construct measures of policy volatility based on the standard deviation of the residuals from country specific regressions of government consumption on output undisciplined governments that implement frequent and large changes in government spending unrelated to the state of the business cycle generate lower economic growth we employ both instrumental variables and panel estimation to address concerns of omitted variables and endogeneity a 1 standard deviation increase in policy volatility reduces long term economic growth by about 0 74 in the panel regressions and by more than 1 percentage point in the cross section

impacts of the hara biosphere reserve on livelihood and welfare in persian gulf abstract despite the importance of biosphere reserves in iran s livelihood and welfare the economic significance of hara biosphere reserve has never been comprehensively studied this study examines the current importance of hara biosphere reserve hbr in local livelihood and welfare using a household survey data were collected through a questionnaire key informant interviews and direct observations two hundred and forty four households were randomly selected from 10 villages through proportional sampling results showed that non environmental income was the first driver of the total income poverty alleviation and narrowing income inequality gap park income was the second the results also showed that excluding park income from total income would significantly increase headcount poverty widen the poverty gap and raise the gini coefficient wealthier households had the greatest absolute income from the environment including forest fishing and fodder however the poorest group had smallest absolute income from these sources thus the study demonstrated that wealthier households are responsible for the overharvesting of environmental resources interestingly the study showed that wealthier households are more dependent on profitable environmental incomes sources while the poorest are more dependent on non profitable ones

public opinion and foreign aid cuts in economic crises economic crises generally lead to reductions in foreign aid however the widely held view that budgetary constraints caused by economic crises reduce aid is inaccurate because donor government outlays actually tend to increase we develop an argument that aid cuts occur because voters place a lower priority on aid during economic downturns and politicians respond by cutting aid using data from eurobarometer we demonstrate that economic downturns lead to reduced public support for helping the poor abroad these findings are robust across a large number of alternative specifications our findings have implications for how advocates may prevent aid reductions during economic recessions

nonfarm income diversification and household livelihood strategies in rural africa concepts dynamics and policy implications abstract asset activity and income diversification lie at the heart of livelihood strategies in rural africa this paper introduces a special issue on the topic income diversification and livelihoods in rural africa cause and consequence of change we concentrate on core conceptual issues that bedevil the literature on rural income diversification and the policy implications of the empirical evidence presented in this special issue

unsticking the flypaper effect in an uncertain world abstract we provide a novel explanation for the flypaper effect based on insurance arguments in our model the flypaper effect arises due to the differential response of precautionary savings to private income or fiscal transfers shocks in an uncertain world with incomplete markets the model generates two testable implications i the flypaper effect is a decreasing function of the correlation between fiscal transfers and private income and ii such relationship is stronger the higher is the volatility of fiscal transfers and or private income an empirical analysis of argentinean provinces for the period 1963 2006 finds strong support for the model s implications

fiscal policy in real time in this paper i estimate the ex ante or intentional cyclical stance of fiscal policy in oecd countries i use the fiscal plans reported at the time of budgeting together with other information available to fiscal policy makers in real time indeed fiscal plans might be significantly different from ex post outcomes because governments do not have complete control over their implementation which is influenced by several exogenous factors when fiscal policy rules are estimated using real time data i show in this paper that oecd countries have often planned a counter cyclical fiscal stance especially during economic expansions this contrasts with conventional findings based on actual data which tend to point towards a cyclicality or pro cyclicality forecast errors for the government structural balance and the output gap play a central role in explaining the differences between estimates based on ex ante and ex post data

extending the concept of the resource curse natural resources and public spending on health this paper extends the concept of the resource curse by studying whether and through which transmission channels natural resource wealth affects social spending even though the availability of vast natural capital reserves has commonly been linked to the neglect of human development most of the literature has continued to focus on economic performance this paper is the first to empirically investigate the link between natural resource wealth and public health expenditures in light of the hypothesis that resource wealth as a source of unearned state income enhances state autonomy and increases volatility which leads to policies that fail to prioritize human development using a large panel dataset of world countries covering the period from 1995 to 2009 we find a robust significant inverse relationship between natural resource dependence and even abundance and public health spending over time the effect remains significant after controlling for state autonomy volatility and other factors these findings have implications for national authorities as well as the extractive industry governments should be made accountable for natural resource wealth and correct taxation could provide additional resources earmarked for health the extractive industry could increase their investments in sustainable corporate social responsibility operations specifically in the health sector

the influence of decentralized taxes and intergovernmental grants on local spending volatility abstractthe influence of decentralized taxes and intergovernmental grants on local spending volatility regional studies this paper studies what affects the volatility of sub central public spending in 20 organisation for economic co operation and development oecd countries the evidence based on data from 1972 to 2007 shows that the volatility of intergovernmental grants from upper levels is positively associated with the volatility of local expenditure on the other hand the volatility of local tax revenues mainly that of property taxes exerts the opposite effect these findings suggest that making local governments rely more on grants than own tax revenues adversely affects their spending stability allowing them to levy autonomously taxes relying on responsive tax bases provides incentives to smooth their expenditure

the elusive costs and the immaterial gains of fiscal constraints we study whether fiscal restrictions affect volatilities and correlations of macrovariables and the probability of excessive debt for a sample of 48 us states fiscal constraints are characterized with a number of indicators and volatilities and correlations are computed in several ways the second moments of macroeconomic variables in states with different fiscal constraints are economically and statistically similar excessive debt and the mechanism linking budget deficit and excessive debts are independent of whether tight or loose fiscal constraints are in place creative budget accounting may account for the results

fiscal policy over the real business cycle a positive theory this paper presents a political economy theory of the behavior of fiscal policy over the business cycle the theory predicts that in both booms and recessions fiscal policies are set so that the marginal cost of public funds obeys a submartingale in the short run fiscal policy can be pro cyclical with government debt spiking up upon entering a boom however in the long run fiscal policy is counter cyclical with debt increasing in recessions and decreasing in booms government spending increases in booms and decreases during recessions while tax rates decrease during booms and increase in recessions data on tax rates from the g7 countries supports the submartingale prediction and the correlations between fiscal policy variables and national income implied by the theory are consistent with much of the existing evidence from the u s and other countries

the heterogeneous effect of shocks on agricultural innovations adoption microeconometric evidence from rural ethiopia abstract theoretically the relationship between shocks and agricultural innovation adoption could be ambiguous while shocks could lower the competence and capacity of households to adopt new agricultural innovations households can also take up agricultural innovations as a coping mechanism against the different shocks they face using a nationally representative household data from ethiopia of the living standards measurement study integrated surveys on agriculture lsms isa of the world bank this paper analyzes the effect of idiosyncratic and covariate shocks on adoption of different agricultural innovations assuming interdependence among the innovations we find shocks to have heterogeneous effects on the adoption of agricultural innovations specifically production and health shocks have negative effects on the adoption of high cost innovations such as improved seeds chemical fertilizer and irrigation however production shocks are positively associated with low cost innovations such as organic fertilizer to enhance farmers adoption of agricultural innovations especially high cost innovations there is a greater need towards the design of policies and interventions that would reduce household s exposure to production and health shocks

budget deficits and social protection cyclical government expenditure in the oecd countercyclical government spending offers social protection to the vulnerable when economies move into recession this paper questions the extent to which governments are able to spend countercyclically and the extent to which social expenditures are likely to be countercyclical an analysis of public spending in oecd countries 1980 2005 suggests countercyclical social protection is constrained by the limits to public borrowing and the degree of political polarization

fiscal federalism and procyclical spending the cases of argentina and brazil este trabajo estudia las fuentes de la prociclicalidad del gasto para gobiernos subnacionales en argentina y brasil encontramos que los esquemas de coparticipacion de los impuestos explican solo una parte menor de la prociclicalidad de los recursos de las entidades subnacionales siendo la mayor parte explicada por la prociclicalidad de los propios recursos esto es especialmente visible cuando esa prociclicalidad se mide relativa al producto de cada entidad subnacional usando evidencia de corte transversal para distintas jurisdicciones podemos concluir que a su vez la prociclicalidad del gasto resulta de la prociclicalidad de los recursos mediante el llamado voracity effect la conclusion es que el debate sobre la prociclicalidad del gasto de entidades subnacionales debiera concentrarse mucho mas en mejorar los sistemas impositivos locales que en cambiar los regimenes de coparticipacion

why is fiscal policy often procyclical many countries especially developing ones follow procyclical fiscal policies namely spending goes up taxes go down in booms and spending goes down taxes go up in recessions we provide an explanation for this suboptimal fiscal policy based upon political distortions and incentives for less than benevolent government to appropriate rents voters have incentives similar to the starving the leviathan classic argument and demand more public goods or fewer taxes to prevent governments from appropriating rents when the economy is doing well we test this argument against more traditional explanations based purely on borrowing constraints with a reasonable amount of success

fiscal rules and fiscal counter cyclicality abstract we assess the effect of fiscal rules on a new time varying measure of fiscal counter cyclicality computed for 60 countries over the period 1980 2014 first we find that fiscal counter cyclicality is positive and has been increasing over time being larger in advanced economies second we find that fiscal rules reduce the degree of fiscal counter cyclicality the result is especially strong for debt based rules in advanced economies some design features hinder the degree of fiscal counter cyclicality such as escape clauses or enforcement procedures while others such as transparency foster it

public and private sector wages interactions in a general equilibrium model it is common wisdom that public sector wages are not determined in the same way as private sector wages at the same time the empirical evidence available for oecd countries finds a strong positive correlation between public and private sector wages in this paper we develop a model that is consistent with a political economy view of the determination of public sector wages and employment while being consistent with the said empirical evidence public finance constraints are crucial in booms governments expand employment and wages while in downturns lack of tax revenues forces the government to cut back the wage bill

over optimism in forecasts by official budget agencies and its implications the paper studies forecasts of real growth rates and budget balances made by official government agencies among 33 countries in general the forecasts are found i to have a positive average bias ii to be more biased in booms and iii to be even more biased at the 3 year horizon than at shorter horizons this over optimism in official forecasts can help explain excessive budget deficits especially the failure to run surpluses during periods of high output if a boom is forecasted to last indefinitely retrenchment is treated as unnecessary many believe that better fiscal policy can be obtained by means of rules such as ceilings for the deficit or better yet the structural deficit but we also find iv countries subject to a budget rule in the form of euroland s stability and growth pact sgp make official forecasts of growth and budget deficits that are even more biased and more correlated with booms than do other countries this effect may help explain frequent violations of the sgp the question becomes how to overcome governments tendency to satisfy fiscal targets by wishful thinking rather than by action chile in 2000 created structural budget institutions that may have solved the problem independent expert panels insulated from political pressures are responsible for estimating the long run trends that determine whether a given deficit is deemed structural or cyclical the result is that chile s official forecasts of growth and the budget have not been overly optimistic even in booms unlike many countries in the north chile took advantage of the 2002 7 expansion to run budget surpluses and so was able to ease in the 2008 9 recession

dynamic spillovers of oil price shocks and economic policy uncertainty this study examines the dynamic relationship between changes in oil prices and the economic policy uncertainty index for a sample of both net oil exporting and net oil importing countries over the period 1997 01 2013 06 to achieve that an extension of the diebold and yilmaz 2009 2012 dynamic spillover index based on structural decomposition is employed the results reveal that economic policy uncertainty oil price shocks responds negatively to aggregate demand oil price shocks economic policy uncertainty shocks furthermore during the great recession of 2007 2009 total spillovers increase considerably reaching unprecedented heights moreover in net terms economic policy uncertainty becomes the dominant transmitter of shocks between 1997 and 2009 while in the post 2009 period there is a significant role for supply side and oil specific demand shocks as net transmitters of spillover effects these results are important for policy makers as well as investors interested in the oil market

government science and technology budgets in times of crisis abstract following a recent paper by filippetti and archibugi filippetti a archibugi d 2011 innovation in times of crisis national systems of innovation structure and demand research policy 40 2 179 192 this article aims to contribute to the sparse literature on the impacts of the recent economic downturn on the government expenditures and innovative activities of the countries of the enlarged european union eu 27 using eurostat s socio economic objectives i e the nomenclature for the analysis and comparison of scientific programmes and budgets nabs 2007 classification this paper addresses the impact of the recent economic downturn on governments science and technology s t budgets across the 27 eu countries most countries followed a pro cyclical pattern where the government s t budgets in most nabs shrunk along slowing gross domestic product growth in similar pace with total government expenditure the new member states of eastern europe were the most affected

government spending cyclicality evidence from transitory and persistent shocks in developing countries we revisit the debate of whether government spending is procyclical in developing countries our main contribution is to argue that beyond exogeneity of the income shock an empirical analysis of government spending cyclicality must be carefully tailored to the shock s persistence we first illustrate this point in a simple intertemporal model we then use instrumental variables estimation to characterize the response of government expenditures to exogenous shocks with different degrees of persistence our estimation strategy exploits that i year to year variations in rainfall have a significant positive contemporaneous effect on sub saharan african countries real gdp but this effect is transitory ii year to year variations in the gdp of sub saharan african countries oecd trading partners have a significant positive contemporaneous effect on sub saharan african countries real gdp and this effect is persistent using rainfall as an instrument for sub saharan african countries gdp yields a government consumption expenditures elasticity response of around 0 4 standard error 0 3 when the instrument is the gdp of sub saharan african countries oecd trading partners the estimated government consumption expenditures elasticity response is around 1 1 standard error 0 2 the elasticity response of government consumption expenditures to persistent income shocks is thus significantly higher relative to transitory shocks

fiscal cyclicality and emu abstract for the set of emu member countries we examine cyclical patterns in fiscal outcomes we find that there is significant time variation in fiscal cyclicality with an improvement in the wake of the maastricht treaty but a deterioration after the creation of emu furthermore we show that the fiscal cycle is affected by the financial cycle in addition to the output cycle the lessons for the current reforms of european economic and fiscal governance are manifest

macroeconomic volatility trade and financial liberalization in africa this paper examines the effects of financial and trade liberalization on growth volatility of real output and consumption in africa our results suggest trade liberalization is associated with greater output and consumption growth volatility while financial liberalization increases the efficacy of consumption smoothing and stabilizes income and consumption growth in addition we find financial market depth and institutional quality operate jointly with trade and financial openness to reduce volatility in output and consumption growth there is also evidence that good institutions which foster low inflation levels and volatility promote consumption and output growth stability