Marialuz Moreno Badia

Fiscal Performance, Institutional Design and Decentralization in European Union Countries

This paper analyzes the impact of decentralization on overall fiscal performance in the European Union, taking into account fiscal institutional arrangements. We find that spending decentralization has been associated with sizably better fiscal performance, especially when transfer dependency of subnational governments is low. However, subnational fiscal rules do not seem to be associated with better performance.

Competitiveness in the Southern Euro Area: France, Greece, Italy, Portugal, and Spain

This collection of studies analyzes developments in nonprice external competitiveness of France, Greece, Italy, Portugal, and Spain. While France, Italy, and Portugal have experienced substantial export market share losses, Greece and Spain performed relatively well. Export market share losses appear associated with rigidities in resource allocation (sectoral, geographical, technological) relative to peers and lower productivity gains in high value-added sectors. Disaggregated analysis of goods and services export markets provides insights on aspects such as quality, market concentration, growth of destination markets, and geographical and sectoral diversification. Also, increased import penetration, offshoring and FDI could improve productivity and export performance.

Too Small to Fail? Subnational Spending Pressures in Europe

The purpose of this paper is to assess whether expenditure decentralization has contributed to weakening fiscal performance in Europe. Using a panel of EU15 countries for the period 1995-2011, we estimate three econometric models and ask the following questions: (1) does the form of spending decentralization affect the general government fiscal balance?; (2) is there evidence of spending duplication?; and (3) are soft budget constraints prevalent at the subnational level in Europe? Our results indicate that current decentralization models may have some shortcomings and efforts to achieve fiscal consolidation would require improvements in three areas: better matching subnational spending and revenues; reshaping some expenditure assignments to reduce overlap; and improving the effectiveness of institutional arrangements at the subnational level.

Fiscal Policy in Latin America : Lessons and Legacies of the Global Financial Crisis

Latin America’s bold fiscal policy reaction to the global financial crisis was hailed as a sign that the region had finally overcome its procyclical fiscal past. However, most countries of the region have not yet rebuilt their fiscal space, despite buoyant commodity revenues and relatively strong growth in the aftermath of the crisis. Using the experience of Brazil, Chile, Colombia, Mexico, Peru, and Uruguay, this paper examines the lessons and legacies of the crisis by addressing the following questions, among others: How much did the 2009 fiscal stimulus help growth? What shortcomings were revealed in the fiscal policy frameworks? What institutional reforms are now needed to provide enduring anchors for fiscal policy? How much rebuilding of buffers is needed going forward?

Real Exchange Rate Appreciation in Emerging Markets: Can Fiscal Policy Help?

A number of emerging markets have experienced substantial real exchange rate appreciation in recent years, generating concerns about competitiveness and prompting policymakers to respond with a combination of mitigating policies. This paper shows that fiscal policy can play a role in alleviating these pressures. Using a sample of 28 emerging market economies over 1983-2011, we estimate a dynamic model of the real exchange rate and find that a permanent fiscal adjustment may reduce appreciation pressures over the long term. Furthermore, the composition of public spending matters, with reductions in current spending playing a key role. To illustrate the importance of these findings, the paper focuses on the case of Brazil. Our results suggest that maintaining fiscal discipline while increasing public investment in Brazil is likely to ease real appreciation pressures, highlighting the importance of tackling long-standing budget rigidities.

Fiscal Consolidation in Israel: A Global Fiscal Model Perspective

Fiscal consolidation has become a central policy prescription for many highly indebted emerging market countries (EMCs). Although prudent fiscal policies tend to reduce vulnerabilities, their implementation is usually postponed. This paper is one of the first attempts in the literature to quantify the costs of delaying fiscal consolidation in an EMC. Using the International Monetary Funds Global Fiscal Model, we find that early consolidation through expenditure cuts results in a substantial increase in Israels long-term output growth over delayed fiscal adjustment. Moreover, the more flexible are the factor markets, the larger is this output gain.

Can They Do It All? Fiscal Space in Low-Income Countries

According to U.N. estimates, low-income countries will have to increase their annual public spending by up to 30 percent of GDP to achieve the Sustainable Development Goals (SDGs), raising the question of whether they can do it all. This paper develops a new metric of fiscal space in low-income countries that accounts for macroeconomic uncertainty, allowing us to assess whether those spending needs can be accommodated. Illustrative simulations based on this methodology imply that, even under benign conditions, the fiscal space available in lowincome countries is likely insufficient to undertake the spending needed to achieve the SDGs. Improving public investment efficiency and domestic revenue mobilization can somewhat narrow the gap but it will require major efforts relative to recent trends.

Who Saves in Ireland? The Micro Evidence

This paper provides detailed empirical evidence on the saving behavior of Irish households using micro data from the 1994/1995 and 1999/2000 Household Budget Surveys. I employ synthetic cohort techniques to characterize the life cycle profile of saving rates and to examine the response of household saving to house price appreciation. The analysis suggests that households at the peak of their working lives have relatively low savings though there is no evidence of a generational savings gap. Also, despite housing being a major component of Irish households, wealth, there is no strong relationship between savings and housing capital gains.

New Dimensions of Adjustment to Globalization

Using firm-level data for Estonia for the years 1997-2005, we analyze the impact of international competition on firm dynamics, considering both firm closedown and product switching. We contribute to the literature in two important ways: (1) this is the first paper to study the determinants of exit and product switching in an emerging market; and (2) we consider explicitly the role of export opportunities. Our results indicate that globalization does not affect firm exit significantly but it is an important factor explaining product switching. Previous studies on industrial countries have shown that product switching has been a defensive strategy against low-cost imports. In contrast, our results suggest that Estonian firms have switched products as an offensive strategy to take advantage of the export opportunities created by trade liberalization.

Globalization drives strategic product switching

Using firm-level data for Estonia for the years 1997-2005, we analyze the impact of international competition on firm dynamics, considering both firm closedown and product switching. We contribute to the literature in two important ways: (1) this is the first paper to study the determinants of exit and product switching in an emerging market; and (2) we consider explicitly the role of export opportunities. Our results indicate that globalization does not affect firm exit significantly but it is an important factor explaining product switching. Previous studies on industrial countries have shown that product switching has been a defensive strategy against low-cost imports. In contrast, our results suggest that Estonian firms have switched products as an offensive strategy to take advantage of the export opportunities created by trade liberalization.