Implementing the Golden Rule of public investment in Europe

Transcription

1 Implementing the Golden Rule of public in Europe Towards a pragmatic focus on boosting public in the Euro area Presentation prepared for the extraordinary meeting of the EESC Workers group Brussels, 30 November 2016 Achim Truger Berlin School of Economics and Law & Macroeconomic Policy Institute (IMK) of Hans Boeckler Foundation 1

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5 Overview austerity and the neglect of public in Europe the golden rule of public the goal: intergenerational fairness + growth towards a pragmatic definition of public excursion: public is strongly effective! Implementation: towards a pragmatic focus on public 5

6 the neglect of public 6

7 the neglect of (net!) public 7

8 Overview austerity and the neglect of public in Europe the golden rule of public the goal: intergenerational fairness + growth towards a pragmatic definition of public excursion: public is strongly effective! Implementation: towards a pragmatic focus on public 8

9 the golden rule for public net public should be financed by budget deficits the reasons: intergenerational fairness & growth net public increases the public/social capital stock future generations inherit higher capital stock, productivity and growth pay-as-you-use principle: future generations contribute to financing via the debt service otherwise present generations have to pay all of the burden otherwise: incentives for under, particularly in times of budgetary pressure 9

10 proponents of the golden rule Richard A. Musgrave (1939/1959) as reform for EU fiscal policy Fitoussi/Creel (2002); Blanchard/Giavazzi (2004) Barbiero/Darvas (of Bruegel) (2014); Dervis/Saraceno (2014) (just last week: iags ) in German debate about the debt brake German council of economic experts (the 5 wise women/men) (2007) proposed the golden rule in their blueprint for the debt brake 10

11 defining public Theoretically, any expenditure with a sufficiently high future return should qualify as find expenditure categories that qualify on average traditional as defined in the national accounts? spending on education? spending on child-care? spending on social work and integration? 11

12 defining public traditional as defined in the national accounts mainly tangible assets (construction, infrastructure, equipment, office machines, other capital goods with an economic life of more than one year) substantial short-term growth effects new multiplier debate: multiplier substantially larger then 1 Larger than for other spending categories and particularly than revenue-side measures substantial long-term growth effects high rates of return 12

13 defining public Table 1: Implied marginal returns to public in per cent. all public capital core public capital Regional national regional national short term long term Source: IMF (2014: 86); Bom and Ligthart (2014: ); author s calculations. 13

14 Overview austerity and the neglect of public in Europe the golden rule of public the goal: intergenerational fairness + growth towards a pragmatic definition of public excursion: public is strongly effective! Implementation: towards a pragmatic focus on public 14

15 Simulations: Methodology What would happen if the golden rule were introduced in 2016 in the EMU-12? effects on public, GDP, government deficit and debt (plus inflation) Use realistic baseline: member states stability programmes identify fiscal stimulus from golden rule difference to 1.5%-point limit (phasing in over three years of big change) and/or leeway for other expenditures through deductability of positive net 15

16 Ex ante-simulation: results Germany baseline scenario real GDP growth in % real_gdp_index in % inflation rate in % government deficit in % of GDP govt.debt in % of GDP gross govt. Investment in % of GDP net govt. Investment in % of GDP golden rule scenario (deviations from baseline) Net-Investment-Stance in % of GDP additional "structural" leeway in % of GDP total fiscal stance in % of GDP real GDP in % "potential"gdp in % GDP growth rate in %-points government budget deficit in %-points debt/gdp-ratio in %-points cumulative inflation in %-points

17 Ex ante-simulation: results 17

18 Ex ante-simulation: results 18

19 Ex ante-simulation: results 19

20 Overview austerity and the neglect of public in Europe the golden rule of public the goal: intergenerational fairness + growth towards a pragmatic definition of public excursion: public is strongly effective! Implementation: towards a pragmatic focus on public 20

21 Implementing the golden rule in the EU fiscal framework 3 ways of defining public 3 ways of implementing the Golden Rule Implementing and improving the EU fiscal framework (probably treaty change necessary) Implementing in the current framwork (probably treaty chance necessary?) Using the leeway in the current framework to boost public 21

22 3 ways of defining public start with (modified) definition from national accounts let commission recommend economically best definition let Commission / Council decide on pragmatic definition according to current focus 22

23 Implementing and improving the current framework deduct net public from relevant deficit numbers of the stability and growth pact i.e. from headline deficit relevant for corrective arm i.e. from structural deficit relevant for preventive arm change method of cyclical adjustment, provide more counter-cyclical leeway adapt goals towards rebalancing 23

24 Implementing the golden rule in the EU fiscal framework deduct net public from relevant deficit numbers of the stability and growth pact i.e. from headline deficit relevant for corrective arm i.e. from structural deficit relevant for preventive arm set upper limit to deductible net of e.g. 1 to 1.5 % of GDP to ensure sustainabilty 24

25 8 ways to boost fiscal policy and strengthen public 25

26 Using current leeway for short term fiscal boost use severe downturn to boost fiscal policy 2-3 years minimum 1 % of GDP stimulus per year e.g. spending on neglected Europe 2020 goals research and education, early childhood, child care infrastructure maintenance and upgrading, ecological renovation of homes and offices, bottlenecks in energy and broadband grids 26

27 Thank you very much for your attention! 27 27

28 appendix 28 28

29 defining public traditional as defined in the national accounts after general revision of national accounts (ESA 2010) includes spending on research and development includes spending on military weapons systems counts more firms/non-profit organisations as part of the government should be corrected for spending on weapons systems (-) and grants to private sector (+) depreciation should be deducted to focus on net pragmatic definition of net 29

30 theoretical optimality is the wrong standard Despite these limitations it would be exaggerated to completely discard the golden rule with recourse to the inconveniences of reality. Investment related borrowing may meet the requirements of the golden rule but in an imperfect manner so that a really convincing concept cannot be realized in its pure form. However, a complete ban of related borrowing cannot even be underpinned by a theoretically plausible argument. (German council of economic experts 2007: 80; author s translation) 30

31 Simulations: Methodology apply fiscal multiplier ( or general expenditure multiplier) for GDP effect apply EU Commission budgetary semi-elasticities for budgetary impact calculate change in potential GDP (m(odified)hp-filter of actual GDP) apply EU-Commission budgetary semi-elasticities for structural budgetary impact use (partially lagged) improvement in structural balance as additional leeway and reiterate Price-level effect is added as 0.3 * real GDP difference joint effect through export/imports is neglected 31

32 Simulations: Methodology Table 5: multiplier values for general government spending and for the 12 euro area countries used in the simulations public expenditure public Belgium Germany Ireland Greece Spain France Italy Luxembourg Netherlands Austria Portugal Finland Source: European Commission 2016a; author's calculations

33 Ex ante-simulation: results Figure 6: Cumulative fiscal stance (, induced additional and total), golden rule against baseline 2020 in % of GDP 2,9 2,9 2,7 2,7 2,6 2,6 2,6 2,3 2,3 2,3 2,3 2,0 2,2 1,5 1,1 1,8 1,7 1,7 1,6 1,5 1,4 1,4 1,3 1,3 1,3 1,1 1,0 1,1 1,1 1,2 1,2 1,2 1,1 1,0 1,0 1,0 1,1 0,7 total additional total additional total additional total additional total additional total additional total additional total additional total additional total additional total additional total additional total additional 0,0 Belgium Germany Ireland Greece Spain France Italy LuxemburgNetherlands Austria Portugal Finland Euro area-12 Source: European Commission (2016a); author s calculations. 33