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This study develops a theoretical framework for the analysis of regular patterns in public financial behaviour, and applies that framework in an empirical assessment of budgetary policies in the United States and in the Netherlands. Its purpose and scope are threefold. First, it sheds theoretical light on economic considerations guiding public financial behaviour in a dynamic model of optimal taxation. The resulting idea, that it may be sensible to smooth taxation over time,is subsequently extended to a more general model of the public finances, which involves spending, taxation, debt and money creation in an effort to control the government budget. Second, using modern econometric methods the practical relevance of this model is illustrated with estimations for the United States and the Netherlands. Third, the model is sufficiently flexible to allow for a number of more institutional insights. In this respect the emphasis is placed on the Dutch economy and public finances. The thesis thus engages economic theory, econometric technique and institutional and macroeconomic background in a combined effort to understand and evaluate regular patterns in public financial behaviour. Its findings have implications for each of these three areas of economic interest.

This thesis aims to provide new and useful insights into the effects that various tax, labour and product market reforms have on the overall economic performance. Additionally, it aims also to provide insights about the optimal monetary and fiscal policy behaviour within the economy characterized with various real labour market frictions. We analyze the benefits of tax reforms and their effectiveness relative to product or other labour market reforms. A general equilibrium model with imperfect competition, wage bargaining and different forms of tax distortions is applied in order to analyze these issues. We find that structural reforms imply short run costs but long run gains; that the long run gains outweigh the short run costs; and that the financing of such reforms will be the main stumbling block. We also find that the effectiveness of various reform instruments depends on the policy maker's ultimate objective. More precisely, tax reforms are more effective for welfare gains, but market liberalization is more valuable for generating employment. In order to advance our understanding of the tax and product market reform processes, we then develop a dynamic stochastic general equilibrium model which incorporates search-matching frictions, costly ring and endogenous job destruction decisions, as well as a distortionary progressive wage and a at payroll tax. We confirm the negative effects of marginal tax distortions on the overall economic performance. We also find a positive effect of an increase in the wage tax progressivity and product market liberalization on employment, output and consumption. Following a positive technology shock, the volatility of employment, output and consumption turns out to be lower in the reformed economy, whereas the impact effect on inflation is more pronounced. Following a positive government spending shock the volatility of employment, output and consumption is again lower in the reformed economy, but the inflation response is stronger over the whole adjustment path. We also find detrimental effects on employment and output of a tax reform which keeps the marginal tax wedge unchanged by partially offsetting a decrease in the payroll tax by an increase in the wage tax rate. If this reform is anticipated one period in advance the negative effects remain all over the transition path. We investigate the optimal monetary and fiscal policy implication of the New-Keynesian setup enriched with search-matching frictions. We show that the optimal policy features deviation from strict price stability, and that the Ramsey planner uses both inflation and taxes in order to fully exploit the benefits of the productivity increase following a positive productivity shock. We also find that the optimal tax rate and government liabilities inherit the time series properties of the underlying shocks. Moreover, we identify a certain degree of overshooting in inflation and tax rates following a positive productivity shock, and a certain degree of undershooting following a positive government spending shock as a consequence of the assumed commitment of policy maker.

This thesis aims to contribute towards a better understanding of the optimal coordination of monetary and fiscal policy in complex economic environments. We analyze the characteristics of optimal dynamics in an economy in which neither prices nor wages adjust instantaneously and lump-sum taxes are unavailable as a source of government finance. We then propose that monetary and fiscal policy should be coordinated to satisfy a pair of simple `specific targeting rules', a rule for inflation and a rule for the growth of real wages. We show that such simple rule-based conduct of policy can do remarkably well in replicating the dynamics of the economy under optimal policy following a given shock. We study optimal policy coordination in the context of an economy where a constant proportion of agents lacks access to the asset market. We find that the optimal economy moves along an analogue of a conventional inflation-output variance frontier in response to a government spending shock, as the population share of non-Ricardian agents rises. The optimal output response rises, while inflation volatility subsides. There is little evidence that increased government spending would crowd in private consumption in the optimal economy. We investigate the optimal properties and wider implications of a macroeconomic policy framework aimed at meeting an unconditional debt target. We show that the best stationary policy in terms of an unconditional welfare measure is characterized by highly persistent debt dynamics, less history-dependence in the conduct of policy, less reliance on debt finance and more short-term volatility following a government spending shock compared with the non-stationary `timelessly optimal' plan.

香港自1983年10月實施聯繫匯率制度開始，財政政策便成為香港政府唯一穩定經濟的措施。為了善用有限的財政儲備，本文嘗試建立一個計量模型，以作評估財政政策對香港經濟的影響。Jha et al. (2010)曾指出香港政府增加財政支出會對經濟有顯著的負面影響，而利用Ravn et al. (2007)的結構向量自回歸（SVAR）模型亦得出相類似的結果。以上的研究結果與一般學者對財政政策的觀點有所出入，而其中一個可能性是它們所使用的計量模型中遺漏了控制變數。當加入摩根士丹利亞太區指數－MSCI AC (All countries) Pacific Index作為對外貿易環境的控制變數後，擴張性財政政策的預測結果則與之前的研究相同。在更換經修改後模型中的投資變數後，模型則預測增加財政支出並不會對投資產生擠擁效應。而經分解後的財政支出分析更顯示政策支出類型是影響財政政策效應乘數的關鍵因素。模型亦估算政府增加經常性開支會對經濟有着顯著的正面作用。若香港政府需於在短期內推行擴張性財政政策，本文建議政府應集中資源於基礎建設上，以達至財政政策效用最大化的經濟效果。 / Given the adoption of the linked exchange rate since October 1983, fiscal policy becomes the only measurement for stabilizing the Hong Kong economy. This paper attempts to establish a framework for evaluating the fiscal effect to prevent the abuse of fiscal measures. The empirical study of Jha et al. (2010) revealed the significant negative impact of fiscal effect in Hong Kong, which violates the classical view of fiscal policy. A similar result has been found by adopting another structural vector autoregression (SVAR) model proposed by Ravn et al. (2007). An omission of control variables in the quantitative model is possible. The MSCI AC (All countries) Pacific Index has been introduced as an international block in the SVAR model proposed by Ravn et al. (2007). The fiscal effect becomes positive and standardizes with the previous fiscal studies. The replacement of investment variable in the modified model suggests that positive fiscal innovation does not encounter with the crowding out effect on investment. The estimations for the decomposition policy expenditures indicate that compositional effect exists, and it undermines the fiscal multiplier. The estimations also reveal that the innovation in recurrent expenditure contributes mainly to the fiscal effect. With the persistence and significant impact on output, concentrating on infrastructure expenditure is the recommendation on Hong Kong fiscal policy to maximize the expansionary effect in the short run. / Detailed summary in vernacular field only. / Wong, Chi Shing. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2012. / Includes bibliographical references (leaves 32-33). / Abstracts also in Chinese. / Chapter 1 --- Introduction --- p.1 / Chapter 2 --- Literature Review --- p.4 / Chapter 2.1 --- Literature Review on Hong Kong Fiscal Policy --- p.5 / Chapter 2.2 --- Literature Review on the SVAR Model of Fiscal Policy --- p.5 / Chapter 3 --- Identification of the Structural VAR Model / Chapter 3.1 --- Original Model / Chapter 3.1.1 --- Identification --- p.8 / Chapter 3.1.2 --- Data --- p.10 / Chapter 3.1.3 --- Estimation --- p.10 / Chapter 3.2 --- Modified Model / Chapter 3.2.1 --- Introduction of International Block --- p.11 / Chapter 3.2.2 --- Estimation --- p.13 / Chapter 3.2.3 --- Robustness Testing --- p.16 / Chapter 3.2.4 --- Crowding Out Effect --- p.17 / Chapter 4 --- Fiscal Effects by Policy Category / Chapter 4.1 --- Decomposition of Government Expenditure --- p.19 / Chapter 4.2 --- Estimation of Fiscal Impulse by Policy Category / Chapter 4.2.1 --- Total Expenditure by Policy --- p.21 / Chapter 4.2.2 --- Recurrent Expenditure by Policy --- p.22 / Chapter 4.2.3 --- Non-Recurrent Expenditure by Policy --- p.25 / Chapter 5 --- Comparison of the Fiscal Effects between “Asian Dragons“ --- p.26 / Chapter 6 --- Concluding Remarks --- p.29 / References --- p.32 / Appendixes / Chapter Appendix A: --- Classification of Expenditure by Policy Area Group --- p.34 / Chapter Appendix B: --- Estimations and Figures --- p.35

This thesis examines determinacy and E-stability of economic policy in monetary union models. Monetary policy takes the form of either a contemporaneous or a forecast based interest rate rule, while fiscal policy follows a contemporaneous government spending rule. In the absence of asymmetries, the results from the closed economy literature on learning are retained. However, when introducing asymmetries into monetary union frameworks, the determinacy and E-stability conditions for economic policy differ from both the closed and open economy cases. We find that a monetary union with heterogeneous price rigidities is more likely to be determinate and E-stable. Specifically, the Taylor principle, a key stability condition for the closed economy, is now relaxed. Furthermore, an interest rate rule that stabilizes the terms of trade in addition to output and inflation, is more likely to induce determinacy and local stability under RLS learning. If monetary policy is sufficiently aggressive in stabilizing the terms of trade, then determinacy and E-stability of the union economy can be achieved without direct stabilization of output and inflation. A fiscal policy rule that supports demand for domestic goods following a shock to competitiveness, can destabilize the union economy regardless of the interest rate rule employed by the union central bank. In this case, determinacy and E-stability conditions have to be simultaneously and independently met by both fiscal and monetary policy for the union economy to be stable. When fiscal policy instead stabilizes domestic output gaps while monetary policy stabilizes union output and inflation, fiscal policy directly affects the stability of monetary policy. A contemporaneous monetary policy rule has to be more aggressive to satisfy the Taylor principle, the more aggressive fiscal policy is. On the other hand, when monetary policy is forward looking, an aggressive fiscal policy rule can help induce determinacy.