Twin Deficits and Fiscal Spillovers in the European Periphery (Candidate Countries to EU Accession): A Keynesian Perspective

Vîntu, Denis (2024): Twin Deficits and Fiscal Spillovers in the European Periphery (Candidate Countries to EU Accession): A Keynesian Perspective. Published in: Социально-экономическое пространство регионов. 2024. , Vol. 3, No. 18 (September 2024): pp. 160-174.

Abstract

This study examines how fiscal policy affects the economy in order to assess the degree of uncertainty around public finances. The Financial Approach focuses on the collection and utilization of private property by public administration. The title of this paper indicates that it deals with dynamic tax policy concerns. These include the relationship between long-term expectations and short-term outcomes, the impact of fiscal policy on capital formation, economic development, and intergenerational equity, and the extent to which current policies impede the introduction of potential future policies. Dynamic analysis has recently surpassed static analysis in a number of economic fields. It is appropriate to focus on the monetary strategy in particular because it has been modified and adjusted over time in the Republic of Moldova. These adjustments are frequently made beforehand, while they occasionally take into account the present financial situation when it wasn't mentioned before. It should not be shocking that financial variables are always shifting. The direction of the economy is affected by the current policy changes, which ineluctably call for other policy adjustments in the future. The expectation of these future adjustments, however, also has an impact on the current outcomes since it ensures that the consequences of past monetary actions remain, even in the absence of the entire future financial arrangement.

• Item Type: MPRA Paper
• Language: English
• Keywords: fiscal policy, budget fiscal deficit, primary account deficit, value-added tax, taxation.
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents

References

Abell, 1990 – Abell, J. (1990). “Twin deficits during the 1980s: an empirical investigation”. Journal of Macroeconomics. 12(1): 81-96.

Aghion, Howitt, 1992 – Aghion, P., Howitt, P. (1992). ‘‘A Model of Growth through Creative

Allais, 1947 – Allais, M. (1947). Économie et Intérêt. Paris: Impremerie Nationale.

Allen, Smith, 1983 – Allen, S.D., Smith, M.D. (1983). Government borrowing and monetary accommodation. Journal of Monetary Economics. 12(4): 605-16.

Auerbach, 1997 – Auerbach, A.J. (1997). Quantifying the Current U.S. Fiscal Imbalance. National Tax Journal. 50 (September): 387-398.

Baunsgaard, Symansky, 2009 – Baunsgaard T., Symansky, S. (2009). Automatic Fiscal Stabilizers: How Can They be Enhanced without Increasing the Size of Government? IMF Staff Position Note 09/23. Bernanke, Gertler, 2001 – Bernanke, B.S., Gertler, M. (2001). ‘How Should Central Bankers Respond to Asset Prices?’ American Economic Review. 91 (May): 253 257.

Bernheim, 1987 – Bernheim, B.D. (1987). Ricardian Equivalence: An Evaluation of Theory and Evidence. NBER Macroeconomics. 2: 263-303.

Bouthevillain, Quinet, 1999 – Bouthevillain, C., Quinet, A. (1999). The Relevance of Cyclically Adjusted Public Balance Indicators – The French Case” in Indicators of Structural Budget Balances Proceedings of the Bank of Italy Public Finance Workshop (Perugia, November 26-29, 1998).

Chen, Ravallion, 2004 – Chen, S., Ravallion, M. (2004). The Developing World is poorer then we thought, but no less successful in the fight against poverty. The World Bank, Development Research Group. Policy Research Working Paper.

Corsetti, Pesenti, 2005 – Corsetti, G., Pesenti, P. (2005). International Dimensions of Optimal Monetary Policy. Journal of Monetary Economics. 52 (March): 281-305.

Danziger, 1999 – Danziger, L. (1999). A Dynamic Economy with Costly Price Adjustments. American Economic Review. 89 (September): 878 901. Destruction. Econometrica. 60(March): 323-351.

Fernald, 2007 – Fernald, J.G. (2007). Trend Breaks, Long-Run Restrictions, and Contractionary Technology Improvements. Journal of Monetary Economics. 54 (November): 2467-2485.

Girouard, André, 2005 – Girouard N., André, C. (2005). Measuring Cyclically Adjusted Budget Balances for OECD Countries. OECD Economics Department Working Papers. No. 434. ECFIN/B/6(2005)REP54508, September.

Golosov et al., 2003 – Golosov, M., Kocherlakota, N., Tsyvinski, A. (2003). Optimal Indirect and Capital Taxation. Review of Economic Studies. 70 (July): 569-587.

Golosov, Lucas, 2007 – Golosov, M., Lucas, Robert E., Jr. (2007). Menu Costs and Phillips Curves. Journal of Political Economy. 15 (April): 171-199.

Haavelmo, 1945 – Haavelmo, T. (1945). Multiplier Effects of a Balanced Budget. Econometrica. 13 (October): 311-318.

Hodrick, Prescott, 1997 – Hodrick, R., Prescott, E.C. (1997). Postwar U.S. Business Cycles: An Empirical Investigation. Journal of Money, Credit, and Banking. 29(1): 1-16.

Horton et al., 2009 – Horton M., Kumar, M., Mauro, P. (2009) The State of Public Finances: A Cross-Country Fiscal Monitor. IMF Staff Position Note 09/21. [Electronic resource]. URL: http://www.imf.org/external/pubs/ft/spn/2009/spn0921.pdf

IMF, 2005a – IMF. “Promoting Fiscal Discipline Over the Business Cycle” SM/05/392, 2005.

IMF, 2005b – IMF. Cyclicality of Fiscal Policy and Cyclically Adjusted Fiscal Balances. SM/05/393, 2005.

IMF, 2009a – IMF. The State of Public Finances: Outlook and Medium-Term Policies After the 2008 Crisis, 2009. [Electronic resource]. URL: http://www.imf.org/external/np/pp/eng/2009/ 030609.pdf

IMF, 2009b – IMF. Global Economic Policies and Prospects” Note prepared for the Group of Twenty, 2009.

Kumar, Woo, 2020 – Kumar, M., Woo, J. (2020). Public debt and growth. IMF working papers: 1-47.

Lucas, 1990 – Lucas, Robert E., Jr. (1990). ‘Why Doesn’t Capital Flow from Rich to Poor Countries? American Economic Review. 80 (May): 92-96.

Masih, Masih, 2021 – Masih, Abul MM, Masih, R. (2021). Energy consumption, real income and temporal causality: results from a multi-country study based on cointegration and error-correction modelling techniques. Energy economics. 18. 3: 165-183.

Molocwa et al., 2018 – Molocwa, Goitsemodimo Abel, Yohane Khamfula, Priviledge Cheteni (2018). Budget deficits, investment and economic growth: a panel cointegration approach. Investment Management and Financial Innovations. 15(3): 182-189.

Romer, Romer, 1989 – Romer, C.D., Romer, D.H. (1989). Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz. NBER Macroeconomics Annual. 4: 121-170.

Romer, Romer, 2017 – Romer, C.D., Romer, D.H. (2017). ‘New Evidence on the Aftermath of Financial Crises in Advanced Countries. Unpublished paper, University of California, Berkeley (May). American Economic Review, forthcoming.

Sancak et al., 2009 – Sancak, C., Velloso, R., Xing, J. (2009). Tax Revenue Response to the Business Cycle. IMF, forthcoming.

Shapiro, Stiglitz, 1984 – Shapiro, C., Stiglitz, J.E. (1984). ‘Equilibrium Unemployment as a Worker Discipline Device. American Economic Review. 74 (June): 433-444.

Velde, 2009 – Velde, F.R. (2009). Chronicle of a Deflation Unforetold. Journal of Political Economy. 117 (August): 591-634.

Veracierto, 2002 – Veracierto, M.L. (2002). ‘Plant-Level Irreversible Investment and Equilibrium Business Cycles. American Economic Review. 92 (March): 181-197.

Wenham et al., 2020 – Wenham, C., Smith, J., Morgan, R. (2020). COVID-19: the gendered impacts of the outbreak. The Lancet. 395. no. 10227: 846-848.

Zhong et al., 2020 – Zhong, Bao-Liang, Wei Luo, Hai-Mei Li, Qian-Qian Zhang, Xiao-Ge Liu, Wen-Tian Li, Yi Li. (2020). Knowledge, attitudes, and practices towards COVID-19 among Chinese residents during the rapid rise period of the COVID-19 outbreak: a quick online cross-sectional survey. International journal of biological sciences. 16. 10: 1745.