Fiscal policy & public debt.

Transcription

1 Fiscal policy & public deb.

2 Plan of oday s lecure Definiions Public deb dynamics Fiscal policy & aggregae demand a shor reminder.

3 The size of he public secor in XX cenury. Kraj Ausralia 6,5 9,3 4,8 2,2 25,0 32,4 33,2 35,7 33,3 Ausria... 4,7 20,6 35,7 37,3 46,9 48,8 52,5 47,9 Belgia 3,8* 22,* 2,8* 30,3 39,5 53,3 50,4 50,2 46,3 Francja 7,0 27,6 29,0 34,6 37,6 45,5 49,5 53,5 50,8 Holandia 9,0* 3,5* 9,0* 33,7 37,0 50,9 49,4 47,7 4,3 Irlandia... 8,8 25,5 28,0-47,3 39,9 38,0 30,0 Japonia 8,3 4,8 25,4 7,5 8,3 29,2 30,4 34,4 36,9 Kanada... 6,7 25,0 28,6 33,8 39, 45,7 45,0 37,8 Niemcy 4,8 25,0 34, 32,4 37,2 46,5 43,8 46,3 45,7 Norwegia 9,3 6,0,8 29,9 34,9 43,9 49,7 47,6 40,8 USA 7,5 2, 9,7 27,0 29,6 3,3 33,6 32,9 30,4 Szwajcaria 4,0 7,0 24, 7, ,5 39,4 - Szwecja 0,4 0,9 6,5 3,0 42,0 57,6 55,9 6,8 52,9 W. Bryania 2,7 26,2 30,0 32, , 42,2 38,4 Włochy,* 22,5* 24,5* 30, 32,0 4,0 52,9 5, 45,3 Średnia,9 8,2 22,4 27,9 33,7 43,4 44,7 45,2 4, 3

4 The general governmen secor The general governmen insiuional unis which are non-marke producers whose oupu is inended for individual and collecive consumpion, and are financed by compulsory paymens made by unis belonging o oher secors, and insiuional unis principally engaged in he redisribuion of naional income and wealh. (ESA, 200) I encompasses, among ohers he cenral, local governmens and he social securiy funds In mos counries, here is a big difference beween he cenral governmen saisics and he numbers for he general governmen.

5 The general & cenral govenremn Toal general governmen expendiure Toal general governmen expendiure

6 Definiions Fiscal defici in year : defici = ib - + G T, where B - public deb and he end of -. Primary fiscal defici in year is he fiscal defici less ineres paymens. Primary defici = G T,

7 Cyclically adjused defici Recall he so called auomaic sabilizers any governmen program or policy ha couneracs he business cycle wihou any explici governmen acion. Auomaic sabilisers imply, among ohers ha during he recession public spending goes up and public revenue goes down - i.e. fiscal defici changes.

8 Cyclically adjused defici Cyclically adjused budge defici or srucural defici or full-employmen budge defici wha he budge defici would be, if he economy were operaing a full employmen. This is a useful measure, as i reflecs only policy changes and no he changes in business cycle

9 Public deb convenional and unconvenional measures Convenional approach - explici governmen liabiliies However, he size of governmen deb can be affeced boh by coningen and implici liabiliies as well as by oher offbudge obligaions. Thre are many calls for a broadening of convenional pubic deb analysis o include coningen, implici and oher offbudge liabiliies. Coningen liabiliies refer o fuure governmen liabiliies ha arise only if a paricular even maerialises. Implici liabiliies are mosly relaed o enilemens whose paymens fall due in he fuure, such as pensions and oher age-relaed public spending.

10 Governmen secor budge consrain The budge consrain of he public secor: B B B defici Nominal public deb a he end of period is : B ib G T 0

11 The dynamics of public deb o GDP raio g b r b g b i b PY T G b i b PY T G b PY Y P i b PY T G Y P B PY Y P i b PY T G PY B i PY B PY ib G B T ) ( ) ( ) )( ( ) ( : / Sar from nominal values:

12 Public deb o GDP - dynamics b b where b r Y Y b g Conclusions: Deb o GDP dynamics are an oucome of: The difference beween he real ineres rae and he growh rae of GDP, muliplied by deb o GDP Primary defici. This implies ha boh he curren fiscal policy and he macroeconomic condiions deermine wha happens wih public deb raio 2

13 Public deb dynamics CASE : r<γ & consan g >0 Δb g - b 3

14 Public deb dynamics CASE 2 r>γ consan g >0; public deb explodes Δb g - b 4

15 Size of public deb (horizonal axis) and average GDP growh, Wielkość długu publicznego. lower han 30% GDP, % GDP, 3. 60% - 90% GDP, % GDP, % GDP, % GDP, a 20% PKB, 8.higher 20% PKB. 5

16 Correlaion or causaliy? There is undoubedly a correlaion beween he size of public deb and GDP growh The quesion in on causaliy wha causes wha

17 Public deb reducion is a very difficul ask An aemp o reduce fiscal defici migh lead o a shor run reducion in GDP growh rae, wha may undermine he sabilizaion effor In he same ime, a growing public deb migh lead o an increase in ineres paymens. 7

18 0 year governmen bond yields Źródło: Saisical Daa Warehouse, ECB

19 Daa on public deb hp:// ex.php Noice he very ineresing case of Greece & case of Japan 9

20 Fiscal policy & aggregae demand The difficulies of fiscal consolidaion relae o he quesion on he impac of fiscal policy on aggregae demand & economic aciviy. This is a huge research opic The impac of fiscal policy on aggregae demand can be differen, depending on: The ime horizon of he analysis: shor vs he long run. Assumpions: Keynesian (more or less) or sric Ricardian Equivalence 20

21 Fiscal policy and aggregae demand in he long run Over he long run, fiscal policy canno change he level of aggregae demand, only is srucure (crowding ou effec!) Over he shor run, fiscal policy may have an impac on aggregae demand, under he condiion ha Ricardian Equivalence does no hold For example according o he Keynesian approach, an expansionary fiscal policy will increase aggregae demand, while conracionary fiscal policy will decrease i. The daa shows ha he Ricardian approach holds only very rarely (if ever )

22 Fiscal ighening, as measured by he IMF s esimae of he cyclically adjused primary balance (%of GDP) & he deviaion of real GDP from wha he IMF was projecing before he crisis, Source: Paul Krugman, hps://krugman.blogs.nyimes.com/205//20/he-expansionaryauseriy-zombie/

23 Fiscal adjusems and he change in real GDP, , euro area Źródło: Paul Krugman, hps://krugman.blogs.nyimes.com/205/07/0/auseriy-and-hegreek-depression (za IMF)

24 Fiscal consolidaion and GDP IMF esimaes; developed counries Source: IMF, WEO, Ocober 200.

25 Acive or passive fiscal policy? Some economiss are agains he use of acive fiscal policy, as hey doub is abiliy o effecively influence oupu. Bu even supporers admi ha using an acive fiscal policy is "difficul": delays a he implemenaion sage, crowding-ou effecs, The endency of governmens o coninue loose policy, even during he boom period. As a resul, even he supporers of acive fiscal policy are cauious in recommending discreionary changes in fiscal policy; bu hey posulae o le he auomaic sabilizers work. 25

26 Summary Public deb dynamics is deermined boh by he shape of fiscal policy and macroeconomic condiion of a counry Excessive public deb may be very difficul o bring down. Fiscal policy seems o affec oupu in he shor run, in he way ha we have describe in he DAD/DAS model bu is overuse migh lead o excessive public deb