Ludger Schuknecht

Public Sector Efficiency: Evidence for New EU Member States and Emerging Markets

In this article, we analyse public sector efficiency in the new member states of the EU compared to that in emerging markets. After a conceptual discussion of expenditure efficiency measurement, we compute efficiency scores and rankings by applying a range of measurement techniques. The study finds that expenditure efficiency across new EU member states is rather diverse especially as compared to the group of top performing emerging markets in Asia. Econometric analysis shows that higher income, civil service competence and education levels as well as the security of property rights seem to facilitate the prevention of inefficiencies in the public sector.

Fiscal Policy Cycles and Public Expenditure in Developing Countries

The paper studies empirically the fiscal policy instruments by which governments try to influence election outcomes in 24 developing countries for the 1973–1992 period. The study finds that the main vehicle for expansionary fiscal policies around elections is increasing public expenditure rather than lowering taxes, and public investment cycles seem particularly prominent. Institutional mechanisms which constrain discretionary expenditure policies and which strengthen fiscal control are therefore worthwhile considering to prevent opportunistic policy making around elections.

Expenditure Reform in Industrialised Countries - A Case Study Approach

This study examines reforms of public expenditure in industrialised countries over the past two decades. We distinguish ambitious and timid reformers and analyse in detail reform experiences in eight case studies of ambitious reform episodes. We find that ambitious reform countries reduce spending on transfers, subsidies and public consumption while largely sparing education spending. Such expenditure retrenchment is also typically part of a comprehensive reform package that includes improvements in fiscal institutions as well as structural and other macroeconomic reforms. The study finds that ambitious expenditure retrenchment and reform coincides with large improvements in fiscal and economic growth indicators.

Boom-Bust Phases in Asset Prices and Fiscal Policy Behavior

Boom and bust phases in asset prices have become a pervasive feature of macroeconomic developments in many advanced economies. This paper studies fiscal policy during boom-bust phases in asset prices and draws several conclusions. First, expansions and contractions in economic activity during such boom-bust phases tend to be highly persistent, cyclical turning points are harder to forecast, and the margins of error for output gap estimates can be large. Second, conventional estimates of revenue elasticities seem not to allow an accurate assessment of fiscal stance or the strength of underlying fiscal positions during boom-bust phases. Third, boom-bust phases tend to exacerbate already existing procyclical policy biases, as well as political-economy biases, toward higher spending and public-debt ratios.

The Cyclicality of Consumption, Wages and Employment of the Public Sector in the Euro Area

This study empirically examines the business cycle behaviour of public consumption and its main components, the public wage bill (including its breakdown into compensation per employee and public employment) and intermediate consumption, in the euro area aggregate, euro area countries and a group of selected non-euro area Organization for Economic Co-operation and Development (OECD) countries (Denmark, Sweden, the UK, Japan and the US). It looks across a large number of variables and methods, using annual data from 1960 to 2005. It finds robust evidence supporting that public consumption, wages and employment co-move with the business cycle in a pro-cyclical manner with 1–2 year lags, notably for the euro area aggregate and euro area countries. The findings reflect mainly the correlation between cyclical developments, but also point to an important role of pro-cyclical discretionary fiscal policies.

The Growth of Government and the Reform of the State in Industrial Countries

This paper describes the growth of public spending in industrial countries over the past century. It identifies several periods: the periods between 1870 and 1913; the period between the two World Wars; the post World War II period up to 1960; and the period after 1960. Public spending started growing during World War I but its growth accelerated after 1960. The paper outlines the reasons for this growth and speculates that recent government growth has not brought about much economic or social progress. The paper sees the future of government mainly in setting the “rules of the game,” and provides a rough blueprint for reform. It also discusses experiences with government reform in selected count les, and predicts that over the next decades, public spending as a share of GDP will fall.

Market Access Advances and Retreats: The Uruguay Round and Beyond

In the Uruguay Round negotiations, trade distorting agricultural policies were taken up substantively for the first time in any round of multi-lateral trade negotiations. Voluntary export restraints outside the Multifibre Arrangement (MFA) were in fact eliminated. Developing countries became equal partners with developed countries. Their tariff cuts covered as large a share of imports as those of the developed countries and were deeper. Because developing country tariffs were higher to start with, their cuts will save importers more (perdollar of imports covered) than will cuts by developed countries. Tariff bindings for most developing countries, although often above applied rates, were extended to 90 percent or more of imports. Few countries agreed to give foreigners unlimited market access in services, or full national treatment in more than a few service activities. But developed countries agreed to some liberalization of cross-border provision for 70 percent of service activities (compared with 25 percent in developing countries). Less positively, although trade restrictions on agricultural products were converted to tariffs, border protection was reduced less on agricultural than on industrial products, and there was little agreement on reducing trade-affecting subsidies. The textiles and clothing agreement binds developed countries to eliminate all MFA-sanctioned restriction but allows them to largely put off doing so until 2005. Concessions to which developing countries agreed are due now. Reciprocal concessions of particular interest are due in the future (elimination of the MFA) or yet to be negotiated (liberalization of agricultural trade). Also disquieting, since the Uruguay Round, developing countries have undertaken anti-dumping cases at a rate (per dollar of imports) three times higher than that for the United States--mostly against other developing countries.

Public or Private Sector Wage Leadership? An International Perspective ∗

Whether a government acts as a wage leader, placing pressure on private‐sector wages (more open to competition), or whether it plays a passive role and merely follows wage negotiations in the private sector, there are important implications for macroeconomic development, particularly in small open economies and/or countries that are members of a monetary union, such as those of the European Monetary Union. With the notable exception of the case of Sweden, opinion on this issue is still divided. In this paper, we look at public‐ and private‐sector wage interactions from an international perspective (18 OECD countries). We focus on the causal two‐way relationship between public and private wage setting, confirming that the private sector, on the whole, appears to have a stronger influence on the public sector, rather than vice versa. However, we also find evidence of feedback effects from public wage setting, which affect private‐sector wages in a number of countries. When the private sector takes the lead on wages, there are few feedback effects from the public sector, while public wage leadership is typically accompanied by private‐sector feedback effects.

Political Business Cycles and Expenditure Policies in Developing Countries

The paper studies empirically fiscal policies around elections in 35 developing countries. It finds that governments try to improve their reelection prospects with the help of expansionary expenditure policies. Rising fiscal deficits before elections are followed by fiscal consolidation afterwards. These cycles can be found particularly in countries which are less trade-oriented or which pursue fixed exchange rate policies. Certain IMF-supported programs (SAF/ESAF and EFF arrangements) contribute to fiscal stabilization, but they do not appear to affect the incidence of fiscal cycles. The paper concludes that policy advice and macroeconomic projections should not overlook election constraints, and political feasibility of reforms should be strengthened particularly before elections.

EC Trade Protection Law: Produmping or Antidumping?

This paper argues that the anticipation of protection can have astimulating effect on exports instead of the commonly claimed effect of harassment. If protection serves market cartelization by fixing export quantities or prices, exporters may have an incentive to increase their sales abroad in order to secure a large share of the expected rent, which is brought about by the anticipated import restriction. This may even result in sales below marginal costs or dumping.The effect of the protectionist threat may then be the reverse of what is intended: it can raise the speed of import penetration and it can provoke dumping. A formal model and a supportive institutional analysis of EC trade protection is supplemented by preliminary empirical evidence.