The Composition of Fiscal Consolidation Matters: Policy Simulations for Hungary

This chapter draws on historical statistics reporting financial outcomes for spending, taxation, debt, and deficit for the UK over a century to (a) identify quantitatively and compare the main fiscal squeeze episodes (i.e. major revenue increases, spending cuts, or both) in terms of type (soft squeezes and hard squeezes, spending squeezes, and revenue squeezes), depth, and length; (b) compare these periods of austerity against measures of fiscal consolidation in terms of deficit reduction; and (c) identify economic and financial conditions before and after the various squeezes. It explores the extent to which the identification of squeeze episodes and their classification is sensitive to which thresholds are set and what data sources are used. The chapter identifies major changes over time that emerge from this analysis over the changing depth and types of squeeze.

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The IMF, the UK Policy Debate, and Debt and Deficit Discourse

10.1093/oso/9780198813088.003.0006 ◽

2018 ◽

Author(s):

Ben Clift

Keyword(s):

Adverse Effects ◽

Coalition Government ◽

Policy Debate ◽

Fiscal Consolidation ◽

Policy Space ◽

Fiscal Multipliers ◽

Scientific Image ◽

The Uk ◽

Deep Recession ◽

The Imf

This chapter charts changing character of the economic ideas informing fiscal policymaking in Britain, and Fund responses to them. Drawing on interviews with the Fund’s UK Missions and UK authorities, it shows how, despite the IMF’s prizing of its non-political, scientific image, its differing views of UK policy space and prioritization became the stuff of a contested politics. The central assumption of the coalition government’s construction of fiscal rectitude was that Britain faced a ‘crisis of debt’, yet the IMF did not share this view. Fund work on fiscal multipliers being higher during recessions, and the adverse effects of fiscal consolidation on growth, all had pointed relevance for UK policy. The coalition government saw little potential for activist fiscal policy in support of growth. In 2013 Blanchard accused the UK authorities of ‘playing with fire’ by pursuing excessively harsh austerity which threatened a prolonged and deep recession.

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The Issue of Macroeconomic Closure Revisited and Extended

Acta Oeconomica ◽

10.1556/032.2016.66.1.1 ◽

2016 ◽

Vol 66 (1) ◽

pp. 1-31

Author(s):

Ernő Zalai ◽

Tamás Révész

Keyword(s):

General Equilibrium ◽

Open Economy ◽

Computable General Equilibrium ◽

Statistical Data ◽

Competitive Equilibrium ◽

Numerical Models ◽

Cge Model ◽

Sector Model ◽

Cge Models ◽

Policy Simulations

Léon Walras (1874) had already realised that his neo-classical general equilibrium model could not accommodate autonomous investments. In the early 1960s, Amartya Sen analysed the same issue in a simple, one-sector macroeconomic model of a closed economy. He showed that fixing investment in the model, built strictly on neo-classical assumptions, would make the system overdetermined, and thus one should loosen some neo-classical conditions of competitive equilibrium. He analysed three not neo-classical “closure options”, which could make the model well-determined in the case of fixed investment. His list was later extended by others and it was shown that the closure dilemma arises in the more complex computable general equilibrium (CGE) models as well, as does the choice of adjustment mechanism assumed to bring about equilibrium at the macro level. It was also illustrated through several numerical models that the adopted closure rule can significantly affect the results of policy simulations based on a CGE model. Despite these warnings, the issue of macro closure is often neglected in policy simulations. It is, therefore, worth revisiting the issue and demonstrating by further examples its importance, as well as pointing out that the closure problem in the CGE models extends well beyond the problem of how to incorporate autonomous investments into a CGE model. Several closure rules are discussed in this paper and their diverse outcomes are illustrated by numerical models calibrated on statistical data. First, the analyses are done in a one-sector model, similar to Sen’s, but extended into a model of an open economy. Next, the same analyses are repeated using a fully-fledged multi-sectoral CGE model, calibrated on the same statistical data. Comparing the results obtained by the two models it is shown that although they generate quite similar results in terms of the direction and — to a somewhat lesser extent — of the magnitude of change in the main macro variables using the same closure option, the predictions of the multi-sectoral CGE model are clearly more realistic and balanced.

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Is Expenditure by States for Development Compromised to Ensure Compliance of Fiscal Targets? A Study of Indian States

Arthaniti-Journal of Economic Theory and Practice ◽

10.1177/0976747920966871 ◽

2020 ◽

pp. 097674792096687

Author(s):

H. K. Dwivedi ◽

Sudip Kumar Sinha

Keyword(s):

The State ◽

Capital Account ◽

General Category ◽

Fiscal Deficit ◽

Fiscal Consolidation ◽

Indian States ◽

Corrective Measures ◽

Additional Amount ◽

Three Phases

This article examines the interlinkage between fiscal consolidation targets and states’ developmental expenditure under capital account. While fiscal consolidation targets have enabled states to take corrective measures to reduce deficit under the revenue account, the effect of the same is studied on developmental expenditure under capital account. For analysis, the fiscal deficit and developmental expenditure under the capital account have been compared with the fiscal deficit targets and general category states’ average benchmarks for fiscal indicators for three phases (corresponding to the periods of three finance commissions). It is argued, that, while fiscal consolidation has helped to improve the state finances, the stringent fiscal targets have further reduced the developmental expenditure under capital account. In view of this, it is suggested that the states, which are historically stressed, should be allowed to borrow an additional amount of 0.25 per cent of GSDP each year over and above the existing limit, provided these states make efforts to reduce deficit under revenue account and spend the extra borrowings on developmental expenditure under capital account.

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