Vertical Fiscal Imbalances and the Accumulation of Government Debt

Vertical Fiscal Imbalances and the Accumulation of Government Debt
Author: Inaki Aldasoro
Publisher: International Monetary Fund
Total Pages: 39
Release: 2014-11-20
Genre: Business & Economics
ISBN: 1484357558

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Delegating fiscal decision making power to sub-national governments has been an area of interest for both academics and policymakers given the expectation that it may lead to better and more efficient provision of public goods and services. Decentralization has, however, often occurred on the expenditure and less on the revenue side, creating “vertical fiscal imbalances” where sub-national governments’ expenditures are not financed through their own revenues. The mismatch between own revenues and expenditures may have consequences for public finance performance. This study constructs a large sample of general and subnational level fiscal data beginning in 1980 from the IMF’s Government Finance Statistics Yearbook. Extending the literature to the balance sheet approach, this paper examines the effects of vertical fiscal imbalances on government debt. The results indicate that vertical fiscal imbalances are relevant in explaining government debt accumulation suggesting a degree of caution when promoting fiscal decentralization. This paper also underlines the role of data covering the general government and its subectors for comprehensive analysis of fiscal performance.

A Dynamic Model of Fiscal Decentralization and Public Debt Accumulation

A Dynamic Model of Fiscal Decentralization and Public Debt Accumulation
Author: Si Guo
Publisher:
Total Pages:
Release: 2022
Genre:
ISBN:

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This paper develops a dynamic infinite-horizon model with two layers of governments to study theoretically and quantitatively how fiscal decentralization affects local and central government debt accumulation and spending. In the model, the central government makes transfers to local governments to offset vertical and horizontal fiscal imbalances. But the anticipation of transfers lowers local governments' expected cost of borrowing and leads to overborrowing ex ante. Absent commitment, the central government over-transfers to reduce local governments' future need to borrow, and in the equilibrium both local and central debts are inefficiently high. Consistent with empirical evidence, when fiscal decentralization widens vertical fiscal imbalances, local governments become more reliant on transfers, and both local and central debts rise. Applied to Spain, the model explains 39 percent of the rise in total government debt when the vertical fiscal imbalances widened during 1988-1996, and 18 percent of the fall in debt when the imbalances narrowed during 1996-2006.

In the Red

In the Red
Author: Zsofia Barta
Publisher: University of Michigan Press
Total Pages: 225
Release: 2018-03-22
Genre: Political Science
ISBN: 0472900927

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Why do rich countries flirt with fiscal disaster? Between the 1970s and the 2000s, during times of peace and prosperity, affluent countries—like Belgium, Greece, Italy, and Japan—accumulated so much debt that they became vulnerable and exposed themselves to the risk of default. In the past three decades, an extensive scholarly consensus emerged that these problems were created by fiscal indiscipline, the lack of sufficient concern for budgetary constraints from policy makers as they try to please voters. This approach formed the foundation for the fiscal surveillance system that attempted to bring borrowing in European countries under control via a set of fiscal rules. In the Red demonstrates that the problem of sustained, large-scale debt accumulation is an adjustment issue rather than a governance failure. Irrespective of whether the original impetus for borrowing arose from exogenous changes or irresponsible decision making, policy makers invariably initiate spending cuts and/or tax increases when debt grows at an alarming rate for several years in a row. Zsófia Barta argues that explaining why some countries accumulate substantial amounts of debt for decades hinges on understanding the conditions required to allow policy makers to successfully put into place painful adjustment measures.

Public Debt and the Common Good

Public Debt and the Common Good
Author: James Odom
Publisher: Routledge
Total Pages: 201
Release: 2018-07-18
Genre: Political Science
ISBN: 0429866399

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The American national debt stands at $20.49 trillion as of January 2018, or roughly $63,000 for every person in the United States. The national debt has grown six-fold in the past 25 years, and borrowing only has accelerated in recent administrations. What are the factors driving such unrestrained borrowing? Is American fiscal policy different now than in an earlier era? Is there a moral dimension to public debt and, if so, how can that dimension be measured? Public Debt and the Common Good addresses these and other questions by looking to the fiscal policy of the American states. Drawing on classical themes and the longest quantitative review of state debt in the literature, James Odom expertly integrates institutional analysis with dimensions of culture to define the parameters of political freedom in a theoretically coherent way. In doing so, Odom argues that centralization and injustice, or the incapacity for the common good, can help explain state indebtedness. Contributing to ongoing scholarly debates on public debt theory, this book will be of interest to students, scholars, and practitioners who work at the intersection of political philosophy and economics, as well as those who specialize in state public policy, state politics, and federalism more generally.

Defining the Government’s Debt and Deficit

Defining the Government’s Debt and Deficit
Author: Mr.Timothy Irwin
Publisher: International Monetary Fund
Total Pages: 36
Release: 2015-11-20
Genre: Business & Economics
ISBN: 151354750X

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Although the budget deficit and the public debt feature prominently in political debate and economic research, there is no agreement about how they should be measured. They can be defined for different sets of public institutions, including the nested sets corresponding to central government, general government, and the public sector, and, for any definition of government, there are many measures of the debt and deficit, including those generated by four kinds of accounts (cash, financial, full accrual, and comprehensive), which can be derived from four nested sets of assets and liabilities. Each debt and deficit measure says something about public finances, but none tells the whole story. Each is also vulnerable to manipulation, and is likely to be manipulated if it is subject to a binding fiscal rule or target. Narrow definitions of government encourage the shifting of spending to entities outside the defined perimeter of government. Narrow definitions of debt and deficit encourage operations involving off-balance-sheets assets and liabilities, while broad measures are susceptible to the mismeasurement of on-balance-sheet assets and liabilities. Reviewing the literature on these issues, the paper concludes that governments should publish several measures of the debt and deficit in a form that clearly reveals their interrelationships.

Fiscal Adjustment for Stability and Growth

Fiscal Adjustment for Stability and Growth
Author: Mr.James Daniel
Publisher: International Monetary Fund
Total Pages: 80
Release: 2006-08-17
Genre: Business & Economics
ISBN: 9781589065130

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The pamphlet (which updates the 1995 Guidelines for Fiscal Adjustment) presents the IMF’s approach to fiscal adjustment, and focuses on the role that sound government finances play in promoting macroeconomic stability and growth. Structured around five practical questions—when to adjust, how to assess the fiscal position, what makes for successful adjustment, how to carry out adjustment, and which institutions can help—it covers topics such as tax policies, debt sustainability, fiscal responsibility laws, and transparency.

Budget Deficits and Debt

Budget Deficits and Debt
Author:
Publisher:
Total Pages: 484
Release: 1995
Genre: Budget deficits
ISBN:

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Global Waves of Debt

Global Waves of Debt
Author: M. Ayhan Kose
Publisher: World Bank Publications
Total Pages: 403
Release: 2021-03-03
Genre: Business & Economics
ISBN: 1464815453

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The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.

Quantifying the Current U.S. Fiscal Imbalance

Quantifying the Current U.S. Fiscal Imbalance
Author: Alan J. Auerbach
Publisher:
Total Pages: 16
Release: 1997
Genre: Debts, Public
ISBN:

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This paper considers the magnitude of the U.S. fiscal imbalance, as measured by the permanent changes needed to stabilize the national debt as a share of GDP. At present, even after recent improvements in forecast deficits, this imbalance stands at 5.3 percent of GDP -- several times the magnitude of the current official deficit. The imbalance is due primarily to the growth of Medicare, Medicaid, and Social Security. Addressing an imbalance of this size will require significant policy changes. Even if current projected reductions in other government spending occur, and policies are adopted to eliminate the estimated OASDI imbalance and balance the federal budget in 2002, an additional and immediate reduction in the primary deficit of 2.7 percent of GDP will be required to establish a feasible fiscal policy. Waiting to adopt policy changes will increase the size of the required annual primary deficit reduction