Yes / Purpose – The objective of this study is to understand the budgetary role of national legislatures in Euro Area (EA) countries and to analyse implications for fiscal discipline. Design/methodology/approach – Building on the budget institutions literature, a legislative budgetary power index for all the 19 EA countries is constructed using OECD and European Commission data as well as data generated from questionnaires to national authorities. A two-way fixed effects panel data model is then used to assess the effect of legislative budgetary power on the budget balance in the EA during 2006-15. Findings - Overall, in the EA, formal legislative powers vis-à-vis the national budgetary process are weak but there is more legislative involvement in SGP procedures and legislative budgetary organisational capacity is generally quite good. In contrast to the traditional view in the budget institutions literature, our empirical findings show that strong legislative budgetary power does not necessarily result in larger budget deficits. Research limitations/implications – Data on legislative budgeting was available from different sources and timeseries data was very limited. Practical implications – There is scope to improve democratic legitimacy of the national budgetary process in the EA, without necessarily jeopardising fiscal discipline. Originality/value – The constructed legislative budgetary power index covers all the 19 EA countries and has a broad scope covering various novel institutional characteristics. The empirical analysis contributes to the scarce literature on the impact of legislative budgeting on fiscal discipline.

This study examines the impact of fiscal deficits on economic growth in developing countries. Based on deduction from the relevant theoretical and empirical literature, the study tests the following hypotheses regarding the impact of fiscal deficits on economic growth. First, fiscal deficits have significant positive or negative impact on economic growth in developing countries. Second, the impact of fiscal deficits on economic growth depends on the size of deficits as a percentage of GDP - that is, there is a non-linear relationship between fiscal deficits and economic growth. Third, the impact of fiscal deficits on economic growth depends on the ways in which deficits are financed. Fourth, the impact of fiscal deficits on economic growth depends on what deficit financing is used for. The study also examines whether there are any significant regional differences in terms of the relationship between fiscal deficits and economic growth in developing countries. The study uses panel data for thirty-one developing countries covering the period 1972- 2001, which is analysed based on the econometric estimation of a dynamic growth model using the Arellano and Bond (1991) generalised method of moments (GMM) technique. Overall, the results suggest the following. First, fiscal deficits per se have no any significant positive or negative impact on economic growth. Second, by contrast, when the deficit is substituted by domestic and foreign financing, we find that both domestic and foreign financing of fiscal deficits exerts a negative and statistically significant impact on economic growth with a lag. Third, we find that both categories of economic classification of government expenditure, namely, capital and current expenditure, have no significant impact on economic growth. When government expenditure is disaggregated on the basis of a functional classification, the results suggest that spending on education, defence and economic services have positive but insignificant impact on growth, while spending on health and general public services have positive and significant impact. Fourth, in terms of regional differences with regard to the estimated relationships, the study finds that, while there are some regional differences between the four different regions represented in our sample of thirty-one developing countries - namely, Asia and the Pacific, Latin America and the Caribbean, Middle East and North Africa, and Sub-Saharan Africa - these differences are not statistically significant. On the basis of these findings, the study concludes that fiscal deficits per se are not necessarily good or bad for economic growth in developing countries; how the deficits are financed and what they are used for matters. In addition, the study concludes that there are no statistically significant regional differences in terms of the relationship between fiscal deficits and economic growth in developing countries.

Standard and Poor¡¦s (S & P), a global leading corporation in providing credit rating, published the sovereign rating outlook of Taiwan which was ¡§negative sign¡¨ at the end of 2007. The main reason was that the situation of public finance continued worsening. Based on traditional economic theory, the increased deficits or debts led to higher interest rates, and the increasing burden on enterprises for paying more loan cost, would have more adverse effects on the domestic investment activities. Therefore, this study is intended to explore the relationships among the long-term interest rates of public bonds, the outstanding debts, fiscal deficits, and government expenditure in Taiwan by analyzing 53 seasonal data from 1994:4 to 2007:4 as the samples. The findings indicate that no structure breaking points exist in every variable by using CUSUM test, and almost every variable is integrated of order one in unit root test. The results also reveal that there is no long-term relationship among the deficits, government expenditure, and interest rates using the cointegration analysis. There are probably two reasons for explanation: one is that people will increase saving automatically, and another is that the increased interest rates in the tax cut may be offset by the decreased interest rates in debts financing. Moreover, the outstanding debts and interest rates exist a significant negative relationship of long-term equivalence, and further variance decomposition shows that the effect of debts on interest rates is higher than the effect of interest rates on debts in the variable¡¦s explanatory ability. To explain the significant negative relationship, the possible main causes are liquidity factor, and the psychological anticipation of saving in public bond form directly or indirectly; the secondary cause is the fluctuation of interest rates affects the willingness of government financing.

This study assesses the quality of national budget institutions and legislative budgetary power in the Euro Area (EA) and examines their implications on fiscal discipline. Following the sovereign debt crises, common EA requirements have been introduced for national budget institutions, most notably for fiscal rules and independent fiscal councils. Meanwhile, the legislature has a key role to ensure that budgetary decisions are democratically legitimate, but strong legislative budgetary power is generally associated with less fiscal restraint. Two comprehensive composite indices are produced, based on recent data which captures reforms implemented after the Crisis. The findings show that overall, budget institutions in the EA are of medium quality, whilst legislative budgetary power is weak. Notwithstanding the thrust for a ‘one-size-fits-all’ approach, the specific characteristics of budget institutions differ considerably among the EA countries. Furthermore, results from a two-way fixed effects panel model for 2006-2015 show a positive relationship between the quality of budget institutions and the budget balance, but, in contrast to previous studies, the effect is rather weak. Being supra-nationally mandated, recent reforms to budget institutions in EA member states may suffer from a lack of ownership, thus impinging on their effectiveness to instil fiscal discipline. A qualitative case study on Malta provides further insight into the limitations of centrally-mandated institutional reforms. Finally, the findings suggest that stronger legislative budgetary power does not necessarily jeopardise fiscal discipline, if this involves a broad role of the legislature in the budgetary process, beyond amendment powers.

[pt] Esse artigo investiga se a fragilidade fiscal influencia a magnitude dos multiplicadores fiscais. Nós definimos estados de fragilidade fiscal baseados na literatura de determinantes político-institucionais de déficits fiscais. Utilizando dados trimestrais para 44 países, encontramos evidências de que os multiplicadores fiscais de economias em situação fiscal frágil são menores do que os multiplicadores dos países com maior fluxo esperado de geração de superávits. / [en] This paper investigates if fiscal fragility influences the magnitude of fiscal multipliers. We define states of fiscal fragility based on the literature on politico-institutional determinants of fiscal deficits. Using quarterly data for 44 countries, we find that fiscal multipliers in fiscally fragile economies are smaller than in economies expected to have greater surpluses.

The financial crisis of 2007/8 has triggered a profound debate about public budget finance sustainability, ever-increasing government expenditures and the efficiency of fiscal policy measures. Given this context, the following dissertation provides four contributions that analyze the long-run growth of government spending throughout economic development, discuss potential effects of fiscal policy measures on output, and provide new insights into the assessment of debt sustainability for a variety of industrialized countries. Since the breakout of the European debt crisis in 2009/2010, there has been a revival of interest in the long-term growth of government expenditures. In this context, the relationship between the size of the public sector and economic growth - often referred to as Wagner's law - has been in the focus of numerous studies, especially with regard to public policy and fiscal sustainability. Using historical data from the mid-19th century, the first chapter analyzes the validity of Wagner's law for five industrialized European countries and links the discussion to different stages of economic development. In line with Wagner's hypothesis, our findings show that the relationship between public spending and economic growth has weakened at an advanced stage of development. Furthermore, all countries under review support the notion that Wagner's law may have lost its economic relevance in recent decades. As a consequence of the 2007/8 financial crisis, there has been an increasing theoretical and empirical debate about the impact of fiscal policy measures on output. Accordingly, the Structural Vector Autoregression (SVAR) approach to estimating the fiscal multipliers developed by Blanchard and Perotti (2002) has been applied widely in the literature in recent years. In the second chapter, we point out that the fiscal multipliers derived from this approach include the predicted future path of the policy instruments as well as their dynamic interaction. We analyze a data set from the US and document that these interactions are economically and statistically significant. In a counterfactual simulation, we report fiscal multipliers that abstract from these dynamic responses. Furthermore, we use our estimates to analyze the recent fiscal stimulus of the American Recovery and Reinvestment Act (ARRA). The third chapter contributes to the existing empirical literature on fiscal multipliers by applying a five-variable SVAR approach to a uniform data set for Belgium, France, Germany, and the United Kingdom. Besides studying the effects of expenditure and tax increases on output, we additionally analyze their dynamic effects on inflation and interest rates as well as the dynamic interaction of both policy instruments. By conducting counterfactual simulations, which abstract from the dynamic response of key macroeconomic variables to the initial fiscal shocks, we study the importance of these channels for the transmission of fiscal policy on output. Overall, the results demonstrate that the effects of fiscal shocks are limited and rather different across countries. Further, it is shown that the inflation and interest rate channel are insignificant for the transmission of fiscal policy. In the field of public finances, governmental budgetary policies are among the most controversial and disputed areas of political and scientific controversy. The sustainability of public debt is often analyzed by testing stationarity conditions of government's budget deficits. The fourth chapter shows that this test can be implemented more effectively by means of an asymmetric unit root test. We argue that this approach increases the power of the test and reduces the likelihood of drawing false inferences. We illustrate this in an application to 14 countries of the European Monetary Union as well as in a Monte Carlo simulation. Distinguishing between positive and negative changes in deficits, we find consistency with the intertemporal budget constraint for more countries, i.e. lower persistence of positive changes in some countries, compared to the earlier literature.