THE ``DECADE of development’’ cannot rest on an unstable fiscal base. India has seen too often how bold objectives can be pushed aside through financial crisis. It is extremely important to bring down fiscal deficits mainly through budget cuts and privatisation revenues to reduce the ratio of public debt to national income to avoid future macroeconomic destabilisation. Unless substantial fiscal...

In this paper we analyze the implications of demographic shift for an economy’s fiscal sustainability through lens of fiscal space. We formulate a stochastic dynamic general equilibrium, overlapping generations model to measure fiscal space in terms of budgetary room between the current and maximum tax revenues (the peaks of Laffer curves). We calibrate the model to Japan and US data and conduc...

This contribution develops a blueprint for a European fiscal union. We argue that a viable European fiscal union can be constructed without joint liability for public debt or a centralized government with a large common budget. Such a fiscal union should combine elements of market discipline with stabilisation in case of asymmetric shocks. Our proposal addresses the shortcomings of most other r...

This paper studies the effects of monetary policy rules in a fiscal federation, such as the European Union. The focus of the analysis is the interaction between the fiscal policy of member countries (regions) and the monetary authority. Each of the countries structures its fiscal policy (spending and taxes) with the interests of its citizens in mind. Ricardian equivalence does not hold due to t...

An important feature of aid to developing countries is that it is given to the government. As a result, aid should be expected to affect fiscal behaviour. Traditional approaches to modelling fiscal effects are beset by theoretical and empirical problems. This paper applies techniques developed in the ‘macroeconometrics’ literature to estimate the dynamic linkages between aid and fiscal aggregat...

Survey data on expectations shows that households have heterogeneous inflation expectations and their inflation expectations respond sluggishly to realized shocks to future inflation. By contrast, in models with a zero bound on the nominal interest rate currently used for monetary and fiscal policy analysis, households’ inflation expectations are not heterogeneous and not sticky. This paper sol...

We investigate whether fiscal rules help to reduce the extent of policy procyclicalitydhow government expenditure policy responds to GDP– in a dynamic panel framework with 81 advanced, emerging and developing countries over 1985e2012. We construct two new fiscal rule indices and investigate whether rules help to dampen procyclical policies. We condition our empirical specifications on the degre...

While decentralization of fiscal responsibilities is one of the main objectives that has emerged in the agenda of national governments and international organizations, there is little empirical evidence of the potential benefits of this intervention. This paper is an attempt to fill, in part, the void of quantitative measurement. Using panel data on infant mortality rates, GDP per capita, and t...

An important feature of aid to developing countries is that it is given to the government. As a result, aid should be expected to affect fiscal behaviour, although theory and existing evidence is ambiguous regarding the nature of these effects. This paper applies techniques developed in the ‘macroeconometrics’ literature to estimate the dynamic linkages between aid and fiscal aggregates. Vector...

James Edwin Kee, Professor of Public Policy and Public Administration The George Washington University Abstract The last decade has seen a renewed interest in the concept of fiscal decentralization or fiscal federalism. This comes after a half-century of fiscal centralization in most developed and developing nations. This paper examines the theory behind fiscal decentralization and suggests the...