Sustainability of fiscal policy defined as the government’s measures to guide and control spending and taxation is critical. The importance stems from the role of fiscal policy to promote strong and sustainable economic growth, and lasting poverty reduction, mobilizing and allocating resources and for most low income countries to meet millennium development goals. To analyze sustainability of these policies, one needs to look at the fiscal stance of a particular government. Different problems, objectives, and economic structures imply that no single measure will fit all circumstances. A good understanding of how sustainable the policy needs to take into account the individual country practices reflect this diversity. In our case, a commodity exporting country is taken into account. In particular, I assume that the country in question is an oil exporter. An assessment of the fiscal stance must comprehensively analyze stocks, flows and debt indicators in particular non-oil primary balance for this assumed country. Among the relevant flow indicators, one must analyze the following • The overall fiscal balance which is the difference between total revenue (including grants) and total expenditures plus lending minus repayments and reflects the links to the government’s net financing requirements and to the external current account. This however may not be a good indicator for the impact of fiscal policy on domestic demand or the government’s adjustment effort as it has the potential of masking underlying vulnerabilities. For example, with rising oil revenues a fiscal expansion through an increase in spending may be masked by an improving overall balance. • The analysis of fiscal policy over the economic cycle has become more critica... ... middle of paper ... ...il GDP, keeping non-oil revenues and total spending ratios to non-oil GDP unchanged. This approach helps to isolate the specific impact of changes in oil prices, but has some obvious drawbacks as it assumes local linearity between oil prices and fiscal oil revenue. Evolution of the debt-to-GDP ratio is also important. The need to achieve fiscal sustainability should anchor the medium-term fiscal path. In these cases, the overriding objective is to improve the primary balance so that it is consistent with debt sustainability. The slower the improvement, he greater it will need to be, as the debt-to-GDP ratio will continue to increase. Understanding the evolution of the ratio is important. Finally understanding how the deficit is being financed may be key to assess sustainability. Overreliance on oil revenues may expose the budget to volatility leading to need for
Mexico was running an increasing current account deficit from US$7.5 billion in 1990 to US$23.4 billion in 1993. This indicates an excess of private investing over private savings. However, the country was able to maintain an improving fiscal account from US$3.6 billion deficit in 1990 to US$0.7 billion surplus in 1993. The deficit in current account was financed through capital funds from abroad resulting the capital account to increase from US$8.4 billion in 1990 to US$33.8 billion in 1993.
Financial derivatives are fiscal instruments that are joined to a particular money related instrument or marker or product, and through which particular monetary dangers might be exchanged monetary markets in their own particular right. Transactions in money related derivatives ought to be dealt with as partitioned transactions instead of as basic parts of the quality of underlying transactions to which they may be joined. The quality of a fiscal subordinate determines from the cost of an underlying thing, for example, a benefit or file. Dissimilar to obligation instruments, no vital sum is propelled to be reimbursed and no venture pay collects. Money related derivatives are utilized for various purposes including danger administration, supporting, arbitrage between business sectors, and hypothesis.
For government budgeting to be effective, the process that guides it must be an evolving one. As the government gets bigger, it will most likely destabilize the existing method. Therefore, it must change to keep pace with the demands and growth of the country. The process must be capable of handling the complexity of our nation and its multifaceted needs so it will always need revisions and restructuring to face these new challenges. Its ultimate goal must be to reinforce the government and strengthen the country.
Allowing market participants to begin putting their resources back to work in areas they’d be most beneficial. President Obama’s fiscal responsibility summit last February indicated that he understood the urgent need for fiscal discipline. Congress’s enactment of the American Recovery and Reinvestment Act and President’s proposed budget makes the goals of a sustainable budget and addressing nations longer term fiscal priorities, such as entitlement liabilities, even more elusive. The administrations recently released midsession reviews from the office of management and budget that over the next 10 years the accumulated deficits will total $9 trillion which means that the debt held by public will be a staggering 77% of GDP in 2019. If the debt level continues to grow faster than our economy, the US will owe more than it makes.
Kerdrain, C. and Lap`Egue, V. 2011. Restrictive fiscal policies in Europe: what are the likely effects?.
The U.S budget deficit over the years has been a problem but lately the deficit has shrunk. However, what made the U.S budget deficit get to where it is today and what will it be like in the years to come. Throughout the past the U.S has operated under a deficit. This means that the U.S Spent more money than it was taking in. The cause of the excess in spending was different depending on which year. Some of the causes were war, increase in spending , and economic downturns. There were different acts passed to try and control the deficit problem. The deficit at the present time is declining. This decline is due to the improving economy, sequester, and a tax increase on high-income households. The big factor that went into the decline in the deficit for 2013 was the payment that Fannie Mae and Freddie Mac made. The deficit decline in the present time may make some think the U.S could get out of debt but it has been projected that the U.S deficit will start to increase once again.
However, despite these arguments, significant evidence demonstrates the continued need for continued fiscal stimuli, in addition to the monetary policies already undertaken:
Revival following the crisis just when the vulnerabilities in the financial sector have been addressed without endangering the fiscal sustainability. The crisis resolution actions generally involve costly government reorganization of private sector’s and the financial sector’s balance sheet. This can have a long-term negative effect on the public debt levels. Besides,
Monetary and fiscal policy and their applications to the third world countries with a huge informal sector
The reduction of government role in the economy will affect fiscal policy by decreasing deficit spending a...
The IMF (2014). Fiscal Policy and Income Inequality. International Monetary Fund Policy Paper. Available on: http://www.imf.org/external/np/pp/eng/2014/012314.pdf. [Accessed on 21st of April 2014].
...ment has to invest in the future of the country regardless of the deficit it may cause now, because the reimbursement in the future is priceless. An educated, trained and sustainable nation is something that no one can defeat even in times of crisis.
After analyzing the data and the theory, we have provided our conclusion weather tax cut is better for the stimulation of growth or Government spending is? This report explains the big macroeconomic debates of the present times. It seeks to explore the debate within fiscal policy itself between tax cuts and government spending. We have tried to explain the argument through some theories and through some data collected from Indian econ...
It is difficult for government to achieve all the macroeconomics objectives at the same time. Conflicts between macroeconomics objectives means a policy irritating aggregate demand may reduce unemployment in the short term but launch a period of higher inflation and exacerbate the current account of the balance of payments which can also dividend into main objectives and additional objectives (N. T. Macdonald,
Fiscal Affairs Department of IMF in 2009 declared that a statement of the main central government tax expenditures should be required as part of the budget or related fiscal documentation, indicating the public policy purpose of each provision, its duration, and the intended beneficiaries. In addition, there is an area of the budget that routinely escapes rigorous inspection. This is the large allocation of state resources through the use of tax expenditures which reduce the taxes that might otherwise be collected. The tax expenditure report supplements the annual or biennial budget document (Benker, 1986).