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

2021 ◽  
Author(s):  
Waldo Mendoza ◽  
Marco Vega ◽  
Carlos Rojas ◽  
Yuliño Anastacio
Keyword(s):  
Public Debt ◽  
Public Investment ◽  
Commodity Price ◽  
Fiscal Sustainability ◽  
Fiscal Rules ◽  
Long Run ◽  
Fiscal Rule ◽  
Commodity Price Shocks ◽  
Year 2000 ◽  
The Impact

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

scholarly journals The Credibility of Fiscal Rules Policy and Business Cycle Volatility

2016 ◽  
Vol 63 (2) ◽  
pp. 209-224
Author(s):  
Haryo Kuncoro
Keyword(s):  
Government Expenditure ◽  
Output Growth ◽  
Fiscal Sustainability ◽  
Fiscal Rules ◽  
Automatic Stabilization ◽  
Long Run ◽  
Automatic Stabilizer ◽  
Fiscal Rule ◽  
Lower Ratio ◽  
The Impact

The aim of this paper is two-fold; first, it studies the impact of the credibility of fiscal rule policy on the stability of output growth; second, it compares the effectiveness of fiscal rule policy to discretionary and automatic stabilizer fiscal policies to address the fluctuation of output growth. Employing quarterly data over the period 2001-2013 in the case of Indonesia, we obtain that the credible debt rule leads to a decrease in the volatility of output growth while the non-credible deficit rule does not have any effect. Both unsystematic and systematic components of discretionary fiscal policy have a stabilizing function. Interestingly, the automatic stabilization tends to induce the volatility of output growth. Given those results, we infer that government spending is not a good automatic stabilizer. It seems that the lower ratio of government expenditure to GDP along with improving credibility of deficit rule policy has a smoother effect on the economy. Therefore, they implicitly support expenditure cuts when implementing fiscal adjustment with the purpose of reaching fiscal sustainability in the short-run and a stable economic growth in the long-run.

scholarly journals An Analysis of Public Debt Servicing in Zambia: Trends, Reforms and Challenges

2018 ◽  
Vol 24 (81) ◽  
pp. 113-136 ◽  
Author(s):  
Talknice Saungweme ◽  
Nicholas M. Odhiambo
Keyword(s):  
Interest Rates ◽  
Economic Performance ◽  
Public Debt ◽  
Commodity Price ◽  
Debt Service ◽  
Price Shocks ◽  
Commodity Price Shocks ◽  
The Government ◽  
Exchange Management ◽  
The Impact

Abstract The main goal of this paper is to discuss the dynamics of public debt servicing – both domestic and foreign – in Zambia, tracing the trends, reforms and challenges over the period from 1964 to 2015. The paper shows that the exceptional rise in public debt servicing obligations in Zambia over the period under review has been principally due to high domestic and foreign interest rates, frequent debt rescheduling at commercial rates, and capitalisation of non-liquidated service obligations at commercial rates. Also revealed in the paper is the fact that prior to 2005, Zambia experienced severe public debt servicing problems which eased after 2006 owing to debt relief initiatives and an economic rebound. Among the government debt service reforms discussed in the paper are structural adjustments in foreign exchange management, fiscal and monetary reforms, and aggressive engagement of traditional creditors. Primary among the identified challenges of public debt servicing in Zambia was the insistent economic crises that dogged the country during the study period. Notwithstanding the current public debt service sustainability and remarkable economic performance that characterise the country today, the paper found that the recent contraction of nonconcessional loans by the state poses a threat to debt service sustainability in future. Hence, the paper recommends, among other things, for aligning of public sector infrastructure spending with revenues to ensure budget sustainability, and to continue diversifying the economy to minimise the impact of external commodity price shocks on the economy.

scholarly journals A Reappraisal of the Prebisch-Singer Hypothesis Using Wavelets Analysis

2021 ◽  
Vol 14 (7) ◽  
pp. 319
Author(s):  
Hany Fahmy
Keyword(s):  
International Trade ◽  
Structural Breaks ◽  
Developing Economies ◽  
Commodity Prices ◽  
Commodity Price ◽  
Data Set ◽  
Price Series ◽  
Long Run ◽  
Starting Point ◽  
The Impact

The Prebisch-Singer (PS) hypothesis, which postulates the presence of a downward secular trend in the price of primary commodities relative to manufacturers, remains at the core of a continuing debate among international trade economists. The reason is that the results of testing the PS hypothesis depend on the starting point of the technical analysis, i.e., stationarity, nonlinearity, and the existence of structural breaks. The objective of this paper is to appraise the PS hypothesis in the short- and long-run by employing a novel multiresolution wavelets decomposition to a unique data set of commodity prices. The paper also seeks to assess the impact of the terms of trade (also known as Incoterms) on the test results. The analysis reveals that the PS hypothesis is not supported in the long run for the aggregate commodity price index and for most of the individual commodity price series forming it. Furthermore, in addition to the starting point of the analysis, the results show that the PS test depends on the term of trade classification of commodity prices. These findings are of particular significance to international trade regulators and policymakers of developing economies that depend mainly on primary commodities in their exports.

Does Public Debt Service Expenditure Crowd-Out Economic Growth? Empirical Evidence from an African Developing Country

2019 ◽  
Vol 64 (3) ◽  
pp. 23-38
Author(s):  
Talknice Saungweme ◽  
Nicholas M. Odhiambo
Keyword(s):  
Economic Growth ◽  
Public Debt ◽  
Time Series Data ◽  
Policy Formulation ◽  
Debt Service ◽  
Series Data ◽  
Long Run ◽  
Short Run ◽  
The Impact

Abstract This paper contributes to the ongoing debate on the impact of public debt service on economic growth; and it provides an evidence-based approach to public policy formulation in Zimbabwe. The empirical analysis was performed by applying the autoregressive distributed lag (ARDL) technique to annual time-series data from 1970 to 2017. The study findings reveal that the impact of public debt service on economic growth in Zimbabwe is negative in the short run but positive in the long run. The results are suggestive of the existence of a crowding-out effect of public debt service in Zimbabwe in the short run and a crowding-in effect in the long run. In view of these findings, the government should consider fiscal and financial policies that promote a constant supply of long-term finance, long-term fixed investments, and extension of a government securities maturity structure so as to ensure sustainable short- and long-term public debt service expenditures. The study further recommends the strengthening of non-distortionary revenue mobilisation reforms to reduce market distortions and boost domestic investment.

scholarly journals The Impact of Exchange Rate on Bangladesh’s Export: A Cointegration Approach

2020 ◽  
pp. 22-30
Author(s):  
Takrima Sayeda
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange Market ◽  
Export Performance ◽  
Long Run ◽  
Time Period ◽  
Floating Exchange Rate ◽  
Short Run ◽  
Year 2000 ◽  
The Impact

The purpose of the paper is to see if there is any relationship exist between free floating exchange rate and export performance of Bangladesh. It inspects the monthly data of exchange rate and export value for the time period between year 2000 and 2017. It utilized the Johansen [1] cointegration approach to identify the extent of long run and short run relationship between them. The study could not establish neither any long term trend nor any short term dynamics between the variables. Respective variables are significantly related to their own immediate past values. Distant past values do not have any implications. This study suggests that short run macroeconomic policy would be beneficial to influence the foreign exchange market and eventually the performance of export of Bangladesh.

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 COVID-19, Fiscal Federalism and Provincial Debt: Have We Reached a Critical Juncture?

2020 ◽  
Vol 53 (2) ◽  
pp. 279-285 ◽  
Author(s):  
Kyle Hanniman
Keyword(s):  
Fiscal Federalism ◽  
Debt Crisis ◽  
Fiscal Sustainability ◽  
Fiscal Rules ◽  
Critical Juncture ◽  
Fiscal Capacity ◽  
Long Run ◽  
Canadian Federalism ◽  
The World

In 2019, Canada's gross subnational debt to GDP was well over 40 per cent, easily the highest in the world (see Figure 1). This level will only grow as the provinces grapple with the pandemic and its fiscal effects. Some believe surging provincial debts have brought Canadian federalism to a critical juncture: they have greatly increased the odds of federal measures to stabilize provincial finances. This article assesses this claim. The cleanest and most balanced path to fiscal sustainability is a combination of enhanced federal transfers, which would bolster provincial fiscal capacity, and national fiscal rules, which would constrain provincial borrowing. But the former is unlikely to restore sustainability on its own, and the latter would require a severe provincial debt crisis, which Canada's existing fiscal federal structures can avoid. COVID-19 has increased the odds of certain reforms, and it is difficult to predict their long-run effects. But any obvious paths to fiscal sustainability remain hidden.

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

2021 ◽  
Vol 111 ◽  
pp. 102319
Author(s):  
Martín Ardanaz ◽  
Eduardo Cavallo ◽  
Alejandro Izquierdo ◽  
Jorge Puig
Keyword(s):  
Public Investment ◽  
Fiscal Rules ◽  
Budget Cuts ◽  
Fiscal Rule

scholarly journals Public Debt and External Reserve: The Nigerian Experience (1981–2013)

2016 ◽  
Vol 2016 ◽  
pp. 1-7 ◽  
Author(s):  
Victoria Senibi ◽  
Emmanuel Oduntan ◽  
Obinna Uzoma ◽  
Esther Senibi ◽  
Akinde Oluwaseun
Keyword(s):  
Public Debt ◽  
Debt Crisis ◽  
Foreign Debt ◽  
Secondary Data ◽  
Economic Policies ◽  
Interest Payment ◽  
Endogenous Factors ◽  
Long Run ◽  
Domestic Savings ◽  
The Impact

Nigeria is confronted with the issue of limited capital and has to resort to foreign debt in order to augment domestic savings, balance of payment deficits, and shortfall in revenue which induce continuous raise in the debt stock at an alarming rate. In the light of this, this study assesses the impact of public debt on external reserve in Nigeria. The objectives of this study include the assessment of the trends and relationship between public debt and external reserve in Nigeria, using the Johansen cointegration and FMOLS technique on the secondary data from 1981 to 2013. The result revealed that public debt has a positive and significant effect on external reserve stock in the long run suggesting that the nation’s debt crisis can be attributed to both exogenous and endogenous factors such as the nature of the economy, economic policies, high dependence on oil, and swindling foreign exchange receipt. This study recommends that the federal government should employ more superior method to negotiate for fixed interest payment and varying amortization schemes, as well as seek multiyear rescheduling rather than year by year basis.

scholarly journals The Risk of Long-Term Financing of Public Investments

2019 ◽  
Vol 2 (2) ◽  
pp. 42
Author(s):  
Krzysztof Jarosiński ◽  
Benedykt Opałka
Keyword(s):  
Public Debt ◽  
Negative Impact ◽  
Capital Expenditure ◽  
Public Investment ◽  
Point Of View ◽  
Risk Category ◽  
Investment Projects ◽  
The Public ◽  
Public Investments ◽  
The Impact

The risk of financing of public investments is a phenomenon that accompanies development processes in a permanent manner. Investments in the public sector are generally characterized by relatively long implementation cycles and involve significant capital expenditure and the necessity of often parallel running a large number of investment projects. In the processes of this type of investment a specific risk category of financing of this type of investment is quite often taken into account, given that such projects are financed mainly from budgetary resources: the state budget and self-government budgets. Economic practice indicates an importance of the proper selection of the method of the financing of new investments and taking into account new funds from various sources. This situation is often the result of a shortage of budgetary resources from which public investments could be financed. There may be difficulties in financing investments resulting from the emergence of a risk of budgetary deficit and the public debt. This risk may have a negative impact on investment decisions and may adversely affect the future course of ongoing investment projects. The purpose of the paper is to undertake studies on the conditions of financing investments from the point of view of the possibility of budget deficit and public debt and the impact of changes in the financial situation on the overall level of risk of public investment. The text is an invitation to undertake a broader discussion on financing public investments in conditions of limited public financial resources.

Sign in / Sign up

Export Citation Format

Share Document