Paul van den Noord

Managing Public Expenditure

The UK medium-term budgetary framework introduced in 1997 addressed a number of weaknesses of the former regime, notably a bias against capital expenditure and, more generally, poor conditions for longerterm planning adversely affecting central government spending departments, local authorities and public enterprises. Departmental spending was indeed characterised by pronounced swings and capital spending was squeezed to very low levels. These weaknesses are considered the major cause for the poor performance of crucial public services. The present paper discusses the new budgetary framework and examines the scope for further improvement ...

Managing Public Expenditure: Some Emerging Policy Issues and a Framework for Analysis

This paper highlights some key policy issues regarding the performance of public expenditure and proposes an analytical framework for its assessment. The framework distinguishes three economic objectives of policies in the pursuit of better performance of public expenditure: macroeconomic sustainability, allocative efficiency (better outcomes per unit of public expenditure) and technical efficiency (less resource inputs per unit of public output). Against this backdrop, the paper discusses experiences of governments of OECD countries with various policy instruments, including fiscal rules, medium-term fiscal frames, market-based allocation mechanisms and flexible management and control. These experiences could serve as a starting point for peer reviews and international benchmarking ... Cet article met en lumiere certaines des questions essentielles que pose aux autorites l’evolution des depenses publiques et propose un cadre d’analyse pour l’evaluer. Ce cadre distingue trois objectifs economiques pour les politiques qui visent a ameliorer les « performances » des depenses publiques : la viabilite macroeconomique, l’efficacite de la repartition des ressources (de meilleurs resultats par unite depensee) et l’efficience technique (moins de ressources consommees par unite produite). S’appuyant sur cette toile de fond, l’article analyse l’experience des gouvernements des pays de l’OCDE dans l’utilisation des differentes instruments de la politique economique, notamment les regles budgetaires, le cadrage budgetaire a moyen terme, les mecanismes d’affectation fondes sur le jeu du marche et l’assouplissement de la gestion et des controles. Ces experiences pourraient servir de point de depart a des examens similaires et a des comparaisons internationales ...

Fiscal Policy, Government Debt and Economic Performance

This paper reviews fiscal policy, government indebtedness and its implications for economic performance in OECD countries. Government debt, expenditure and revenue relative to GDP have all risen significantly over the past 15 years and in several countries these trends are unsustainable. The macroeconomic implications of high fiscal deficits and debt levels are considered and the paper finds that while monetary policy played a clear role in generating recovery, the effects of fiscal policy are more mixed. Looking forward, Member countries’ plans for fiscal consolidation are ambitious, but if sustained economic growth is achieved, these plans are achievable. However, if growth is slower, then further fiscal consolidation efforts would be required to keep public debt under control. Finally, the paper considers ways of improving the control over expenditure and the budget process, so as to achieve better fiscal outcomes ... Cet article examine la politique budgetaire, l’endettement public et son incidence sur les resultats economiques dans les pays de l’OCDE. Au cours des quinze dernieres annees, la dette, les depenses et les recettes des administrations publiques exprimees en proportion du PIB ont toutes augmente de facon significative et ces tendances sont devenues insoutenables dans plusieurs pays. Les implications macroeconomiques de ces deficits budgetaires et de cette dette eleves sont etudiees et il en ressort qu’alors que la politique monetaire a joue un role evident dans la reprise economique, les effets de la politique budgetaire sont plus mitiges. Pour l’avenir, les programmes d’assainissement budgetaires des pays Membres sont ambitieux. Mais, dans l’hypothese d’une reprise economique soutenue, ces programmes sont realisables. Toutefois, si la reprise economique s’avere plus modeste, des efforts supplementaires d’assainissement budgetaire s’imposeront pour contenir la dette publique. En ...

Fiscal Gimmickry in Europe

Accounting conventions usually leave some room for judgment, which governments may be tempted to take advantage of, especially when fiscal rules bite or threaten to do so. The European experience over the past decade -- documented here in great detail -- illustrates that fiscal gimmicks come in many different guises, but also that some are less mischievous than others. Logit regression analysis confirms that when deficit rules or, to a lesser extent, debt thresholds tend to become more binding, recourse to gimmicks is more likely. It also suggests that more centralised budget systems are less prone to such gimmickry. The policy implications are clear as regards the virtues of transparent and consistent accounting practices, but more ambiguous regarding the merits or otherwise of one-off measures ... Astuces budgetaires en Europe : Mesures non recurrentes et creativite comptable En general, les conventions comptables sont sujettes a interpretation, et les gouvernements peuvent etre tentes d’en profiter, notamment lorsqu’ils sont contraints, ou en voie de l’etre, par des regles budgetaires. L’experience europeenne au cours de la decennie ecoulee -- decrite ici avec force details -- montre que les astuces budgetaires sont proteiformes, mais aussi que certaines posent moins de problemes que d’autres. Des regressions logit confirment que lorsque les regles sur les deficits ou, dans une moindre mesure, les seuils d’endettement deviennent plus contraignants, la probabilite d’un recours a des astuces augmente. Elles corroborent egalement l’idee que les astuces tendent a etre moins employees dans des systemes budgetaires plus centralises. Les implications de politique economique sont claires s’agissant des vertus de la transparence et de la coherence des comptes, mais plus ambigues concernant les merites ou inconvenients des mesures non recurrentes ...

What is the impact of tax and welfare reforms on fiscal stabilisers? A simple model and an application to EMU

Reforms aiming at lowering the tax burden and cutting social benefits may boost efficiency and output, and improve market adjustment to shocks, but, by reducing the size of automatic stabilisers, may also imply less cyclical smoothing. This would be problematic in EMU given the loss of national monetary autonomy. This paper argues that the alleged trade-off between efficiency/flexibility and stabilisation depends on the typology of shocks affecting the economy.In this article we scrutinise some arguments that have featured in the debate about monetary policy’s impact on unemployment; for instance that inflation below the targeted rate has led to 50,000‐70,000 more people being unemployed, that monetary policy has been conducted asymmetrically and that the stabilisation policy regime ‐ including the choice of inflation target ‐ that was adopted when the fixed exchange rate was abandoned has led in itself to higher unemployment than in the preceding decades. These arguments rely to a high degree on unrealistic assumptions and unfounded expectations about what monetary policy can achieve; or else they disregard other factors that may have contributed to unemployment, for example the unforeseen supply-side shocks that have affected Sweden’s economy in recent years. The tendency in the past year to focus the discussion of unemployment solely on monetary policy’s effects is liable to ignore the need for structural measures that are ultimately far more important for the labour market’s development.

Tax Incentives and House Price Volatility in the Euro Area

A problem associated with inflation differentials in monetary unions is that the “crowding-in” effect of lower real interest rates associated with high inflation will initially outweigh the loss of competitiveness (crowding out). The crowding-in effect may produce volatility in house prices, especially if tax regimes favour the occurrence of bubbles. This paper shows that this is the case notably in the smaller countries of the euro area, and this could explain the persistence of inflation differentials in the area to some extent.

Discretionary Fiscal Policy and Elections

D’emblee, le pacte de stabilite et de croissance a ete critique pour son caractere asymetrique et la faiblesse de ses mecanismes destines a empecher les mesures budgetaires a finalite politique : ses contraintes seraient efficaces en periode de ralentissement economique, mais pas en periode d’acceleration, surtout lorsque, dans ce dernier cas, le cycle electoral accroit la tentation d’une politique expansionniste. Notre constat est le suivant : l’experience des premieres annees de l’UEM confirme ces critiques. Au total, contrairement a ce qu’on a pu observer durant les annees qui ont precede l’UEM, les politiques budgetaires ont connu un biais expansionniste et il y a eu veritablement expansion budgetaire parallelement aux elections politiques. Ces changements discretionnaires sont conformes tant en ce qui concerne leur signe que leur composition a ce que pouvaient laisser prevoir les ouvrages recents consacres au cycle electoral des budgets. Une surveillance budgetaire plus ...

THE EURO: PAST SUCCESSES AND NEW CHALLENGES

The successes of the first decade of European Economic and Monetary Union are impressive, but it is fair to stress these were achieved in a relatively benign economic environment characterised by steady global growth, supportive financial conditions and fiscal windfalls associated with booms in asset markets. Although all this has come to an abrupt end with the financial crisis, there is a silver lining of fiscal stimulus being more effective in EMU than without the single currency, with offsetting exchange rate responses absent, trade multipliers stronger and the fiscal framework credible. But the financial crisis also clearly demonstrated the need for stronger coordination of national policy actions to internalise crossborder spillovers. Meanwhile, the European Commission has a major role to play in striking the right balance between short-term emergency measures and longer-term priorities. Against this backdrop, this article sheds light on the longerrun challenges and the policy agenda for meeting them.

Fiscal policies in EMU at the Crossroads

The adoption of the euro represented a major step forward towards deeper economic integration. However, developments in the first six years of the single currency have been challenging. While monetary policy has done relatively well and established its credibility, fiscal policies have fared less well. Many euro area governments failed to take advantage of the 1999–2000 upturn to establish better budgetary positions. Fiscal policy was not made consistent with the longer-term requirements stemming from ageing populations, thus contributing to the uncertainty among households and removing the room for fiscal action. Meanwhile, calls by the major euro area countries to make the fiscal coordination framework more lenient in some respects have been endorsed by the European Council in March 2005. This will make compliance with the fiscal rules easier - as recurrent conflicts between the member countries and the European Commission as the guardian of the fiscal rules would be less likely. But it also heightens the risk of fiscal profligacy, unless the underlying causes of deficit bias are addressed. This paper reviews the issues.

Turning the page? EU fiscal consolidation in the wake of the crisis

The fiscal cost of the financial and economic crisis in Europe is huge. The paper provides provisional estimates of this cost and looks at its implications for the sustainability of public finances, taking into account also the impact of aging populations. The historical experience suggests that economic growth is persistently lowered in the aftermath of financial crisis, making fiscal consolidation more difficult yet all the more essential. Meanwhile the timing of the exit from fiscal stimulus and subsequent fiscal consolidation must reconcile sustainability and stabilisation goals—a delicate balancing act. The paper will argue in favour of structural reform to boost the economic growth potential alongside fiscal consolidation. The fiscal coordination framework in the EU, together with the Europe 2020 strategy, is seen to underpin this approach.