RISING WITH THE TIDE WITHOUT FLIPPING THE BOAT — ANALYZING THE SUCCESSES AND CHALLENGES OF FISCAL CAPACITY BUILDING IN CHINA

While many developing countries experience a short period of economic boom and then spiral quickly into periods of deficit, currency fluctuation, and indebtedness, China has been able to sustain rapid economic growth and maintain solid fiscal capacity for the past 30 years, even during the Asian financial crisis in the late 1990s and the global recession in the beginning of the 21st century. This article examines three key strategies behind China's fiscal success — its flexibility in adapting tax policies to the changing economic and social conditions, its success in realigning the intergovernmental fiscal relationship in 1994 and forcing subnational governments to become more entrepreneurial in revenue generation, and its pursuit of institutional reforms since the mid‐1990s to improve the government's capacity in budgeting and financial management. The article evaluates the implications of the Chinese experience for other developing countries and discusses the future challenges of fiscal reforms in China. Copyright © 2012 John Wiley & Sons, Ltd.     

Fiscal rules,fiscal outcomes and financial market behaviour

Since the outbreak of the eurozone's sovereign debt crisis, a range of fiscal policy measures have been adopted at the European Union (EU) and national levels that have given rise to claims of a significant reinforcement of fiscal policy constraint. Given the prominence and reinvigorated political appeal of fiscal rules in the EU and beyond, it is disconcerting how little we actually know about the link between fiscal rules, budgetary outcomes and market behaviour. In this research note, the aim is to take stock of the existing literature and challenge its contribution to the current policy debate on the merits of fiscal rules. Specifically it will focus on problems linked to endogeneity, measurements and contextuality.     

Fiscal policy responsiveness, persistence, and discretion

This paper analyzes the different characteristics of fiscal policy using a two-step estimation procedure. First, we decompose both government spending and government revenue into three components: responsiveness, persistence and discretion. Second, we assess the determinants of these characteristics. Using data from 132 countries, our results show that fiscal policy is more persistent than responsive to economic conditions, which implies that the authorities may have less leeway in the short-run notably to curb spending behavior. In addition, countries characterized by greater fiscal persistence have less discretion and responsiveness. Finally, macroeconomic, institutional and geographic variables explain cross-country variation in fiscal characteristics.     

Central Decisions,Decentralized Solutions: Comparing the Implications of Central Cutback Policy for the Agency Level in Estonia and Latvia

Abstract

The paper investigates the implications of governmental cutback strategies related to the recent fiscal crisis at agency level in Estonia and Latvia. For this purpose, the article applies a comparative case study approach, through a purposeful selection of five agencies – three in Estonia and two in Latvia – to map the maximum possible variation of before-and-after effects of the crisis on organizational responses and individual-level coping. The selected agencies represent a range of regulatory and social policy domains directly and severely affected by the crisis through budget cuts and increased demand for services, and therefore most affected by the crisis. The study demonstrates that the budget cuts imposed by the cabinets of both countries and widely praised internationally actually left agency-level actors in an extremely difficult situation. Centrally imposed across-the-board cuts resulted in diverse public service gaps, leading to a range of hardships for the citizens, and therefore turning out to be neither equal nor fair for the target groups. The study concludes that centrally decided cutbacks shifted the burden to street-level bureaucrats, who in turn took on the role of key policy actors by ensuring the delivery of public services during the fiscal crisis.     

Dysfunctional Policy Transfer in National Tax Blacklists

Common sense and much of the policy transfer literature suggests that learning from abroad delivers better policy at lower cost. In contrast, this article argues that policy transfer in tax blacklists has been a dysfunctional process tending to replicate errors. Rather than reflecting learning, normative mimicry, or market pressures, over‐committed policymakers have responded to complexity and crisis by unreflectively cutting and pasting from foreign models. Facing a short‐term political imperative to “do something” about tax evasion in an environment of fiscal crisis, many policy makers have compiled blacklists of tax havens by copying lists of “the usual suspects” from abroad. Evidence for both the process of transfer and the dysfunctional nature of resulting policy is provided by tracking recurring errors in these lists that are unlikely to have arisen independently.     

The Politics of Fiscal Responses to the Crisis of 2008–2009

The national fiscal responses to the economic crisis of 2008/2009 varied considerably. Some countries reacted with a strong demand stimulus, others intended to slash public expenditures, while a third group pursued mildly expansionary policies. There are strong reasons for governments to pursue a mildly expansionary policy. If governments depart from this default strategy in favor of a significant counter‐cyclical policy, they must be able to swiftly make decisions. Therefore, effective use of counter‐cyclical policy will be unlikely in cases where lengthy negotiations or significant compromises between governing parties with different views on economic and fiscal policy are likely. Therefore, a major determinant of the expansionary strategy is a unified government, usually in form of a one‐party government. If governments opt for pro‐cyclical policy in a major economic crisis, they do so because they have few other viable options. In this situation they tend to shift blame to international organizations.     

Cross-national convergence in times of crisis? Integration policies before,during and after the refugee crisis

This article analyses if, how and why Scandinavian integration policies converged as a result of the refugee crisis in 2015, studying policies of permanent residence, citizenship, family reunification and access to social benefits. The analysis of policy processes finds that a logic of regulatory competition led to goal convergence, as all three countries explicitly adapted their policies relative to other countries’ policies. Nonetheless, when comparing the configuration of policy instruments and their settings, the cross-national gap persists as all three countries took restrictive steps, thus showing traits of path dependency. The conclusion discusses a severe challenge in the current policy convergence debate in the integration literature: how an insufficient level of precision (1) concerning different dimensions of the policies and (2) concerning how to assess convergence could lead to inaccurate and even opposite conclusions when interpreting empirical analyses.     

The Eurozone crisis and the European corporate elite: bringing corporate actors into focus

This paper uses a framework referred to as the ‘corporate reconstruction of European capitalism theory of integration’ to analyse the European Union’s response to the Eurozone crisis. Most political economy analyses of the Eurozone crisis have focused on political leaders, clashes between creditor and debtor member states and public opinions in analysing the handling of the crisis. This paper focuses instead on the input of corporate actors. It is argued that both the setting up of the European Monetary Union (EMU) and the handling of its crisis were congenial to corporate preferences. Europe’s nascent corporate elite was concerned with eliminating currency risk when the EMU was set up and therefore did not push for fiscal federalism. When the flawed architecture of the Eurozone transformed that currency risk into sovereign credit risk, corporate preferences adapted and now favoured fiscal liability pooling and ultimately the setting up of a fiscal union.     

Political budget cycles and election outcomes

This paper addresses two empirical questions. Is fiscal policy affected by upcoming elections? If so, do election-motivated fiscal policies enhance the probability of re-election of the incumbent? Employing data for 65 democratic countries over 1975–2005 in a semi-pooled panel model, we find that in most countries fiscal policy is hardly affected by elections. The countries for which we find a significant political budget cycle are very diverse. They include ‘young’ democracies but also ‘established’ democracies. In countries with a political budget cycle, election-motivated fiscal policies have a significant positive (but fairly small) effect on the electoral support for the political parties in government.     

Policy Failure and Policy Learning: Examining the Conditions of Learning after Disaster

The policy learning literature indicates that governments can and do learn after a policy failure but not always. The purpose of this study is to examine the conditions under which policy failure leads to policy learning. It asks two questions. First, is policy failure associated with policy learning? Second, if policy is associated with policy learning, does the failure initiate different types of learning? Using the policy failure and learning literatures as an organizing framework, this paper analyzes three comparative cases of policy failure revealed by tornados in Greensburg, Kansas (2007); Joplin, Missouri (2011); and Moore, Oklahoma (2013). It finds that failure of the policy process in agenda setting is associated with instrumental policy learning. It also finds that there are two types of failure of decision making: failure to make a timely decision and failure to make any decision. The two types of decision‐making failure are associated with different types of policy learning. In addition, the contextual factors underpinning the link between policy failure and learning are prior experience with the policy problem and capacity to learn.     

The politics of fiscal policy during economic downturns, 1981–2010

This article investigates fiscal policy responses to the Great Recession in historical perspective. It explores general trends in the frequency, size and composition of fiscal stimulus as well as the impact of government partisanship on fiscal policy outputs during the four international recessions of 1980–1981, 1990–1991, 2001–2002 and 2008–2009. Encompassing 17–23 Organisation for Economic Cooperation and Development (OECD) countries, the analysis calls into question the idea of a general retreat from fiscal policy activism since the early 1980s. The propensity of governments to respond to economic downturns by engaging in fiscal stimulus has increased over time and no secular trend in the size of stimulus measures is observed. At the same time, OECD governments have relied more on tax cuts to stimulate demand in the two recessions of the 2000s than they did in the early 1980s or early 1990s. Regarding government partisanship, no significant direct partisan effects on either the size or the composition of fiscal stimulus is found for any of the four recession episodes. However, the size of the welfare state conditioned the impact of government partisanship in the two recessions of the 2000s, with left‐leaning governments distinctly more prone to engaging in discretionary fiscal stimulus and/or spending increases in large welfare states, but not in small welfare states.     

Partisanship in the setting and coordination of fiscal and monetary policies

Abstract. The principal concerns of this paper are with the roles partisan politics have played in the making of fiscal and monetary policies within OECD countries as well as the extent to which these policies have complemented each other. It is argued that parties of the left pursue fiscal policies that are distinctly different from those pursued by the right. The critical difference is in the way these parties use fiscal policy as a corrective mechanism for dealing with macroeconomic problems: leftist parties adopt counter–cyclical fiscal policies while rightwing parties adhere to pro–cyclical fiscal stances. The paper also examines two arguments regarding monetary policy and how partisan politics affect this policy area. The first and most conventional argument sees the formal independence of the central bank from government as a means of negating partisan influences on monetary policy; the second advances the proposition that, regardless of central bank independence, monetary authorities are not politically neutral but instead share views similar to those of parties on the right–hand side of the political spectrum. Empirical analysis, using a pooled cross–section time–series design with data from 14 countries between 1961 and 1994, produces evidence in favor of the argument concerning the role of partisanship in fiscal policy; it also shows little support for the view that central bank independence inhibits partisan influences while at the same time provides support for the thesis that central banks are politically non–neutral. Thus, coordination between fiscal and monetary policies is far less likely to occur when left–wing parties are in power.     

From asset to patrimony: the re-emergence of the housing question

Abstract

The global financial crisis has ushered in a major housing crisis in many European countries. The paper seeks to shed light on why, despite massive housing crises, there are few policy efforts at tackling it. Probing into the policy paradigms that have informed housing policies, the paper demonstrates a shift towards housing as an asset before the crisis. Increasingly, housing policies have become interwoven with financial markets. This has led to a major policy mismatch after the crisis: while the return of the ‘housing question’ would have required renewed efforts at establishing housing as a social right, de facto policy makers sought to stabilise financial markets. The result is a paradoxical outcome, where neoliberal market-driven programmes are embedded in increased dependence on family wealth. The article demonstrates the shift from housing as asset to housing as patrimony in three different varieties of residential regimes, represented by Ireland, Denmark and Hungary.     

The centralization vs decentralization tug of war and the emerging narrative of fiscal federalism for social policy in India

ABSTRACT

This paper examines the relationship between fiscal federalism and social policy in India through an analysis of the effects of a recent effort to increase fiscal decentralization to state governments on the nature of social policy investment at the sub-national level. Through its analysis, this paper highlights the persistence of a strong centralisation bias in India’s fiscal architecture for social policy. We trace this centralisation bias to the political and administrative dynamics of the federal bargain. The peculiar dynamics of this bargain have created a context where the core goal of centralization – to ensure equity – is undermined while the expectation of decentralization – greater accountability through alignment of expenditure with local needs and preferences, fails to take root. India is thus likely to continue to witness significant regional variation in social policy outcomes, despite a centralised financing architecture.     

Partisanship in the setting and coordination of fiscal and monetary policies

The principal concerns of this paper are with the roles partisan politics have played in the making of fiscal and monetary policies within OECD countries as well as the extent to which these policies have complemented each other. It is argued that parties of the left pursue fiscal policies that are distinctly different from those pursued by the right. The critical difference is in the way these parties use fiscal policy as a corrective mechanism for dealing with macroeconomic problems: leftist parties adopt counter–cyclical fiscal policies while rightwing parties adhere to pro–cyclical fiscal stances. The paper also examines two arguments regarding monetary policy and how partisan politics affect this policy area. The first and most conventional argument sees the formal independence of the central bank from government as a means of negating partisan influences on monetary policy; the second advances the proposition that, regardless of central bank independence, monetary authorities are not politically neutral but instead share views similar to those of parties on the right–hand side of the political spectrum. Empirical analysis, using a pooled cross–section time–series design with data from 14 countries between 1961 and 1994, produces evidence in favor of the argument concerning the role of partisanship in fiscal policy; it also shows little support for the view that central bank independence inhibits partisan influences while at the same time provides support for the thesis that central banks are politically non–neutral. Thus, coordination between fiscal and monetary policies is far less likely to occur when left–wing parties are in power.     

The Impact of the Fiscal Crisis on Public Administration Reforms: Comparison of 14 European Countries

Abstract

This study aims to empirically test a widespread assumption that fiscal crises instigate administrative reforms. The empirical analysis relies upon an international comparative study of the responses of 14 European governments to the fiscal crisis of 2008–2013. It is found that fiscal crisis and public administration reforms are not necessarily closely connected. In the majority of cases, the fiscal crisis did not have an instant effect of triggering structural public administration reforms or substantial shifts in existing reform trajectories. The crisis intensified the pressure to reform public administration to some extent, but the European governments’ responses predominantly followed a combination of straightforward cutbacks and incremental change. More substantial reforms were carried out in countries most severely hit by the crisis and/or where administrative reforms were conditioned by international financial assistance.     

Lessons from the malfunctioning of the Eurozone's financial system

The persisting Eurozone's crisis is a combination of a sovereign debt crisis and a banking crisis that have been triggered by the Global Financial Crisis. The sovereign debt crisis is the consequence of a policy laxity for applying the principles and fiscal rules of the monetary union, which led to macroeconomic imbalances and enforced the mispricing of risks by the markets that in turn contributed to escalate the banking crisis. To address the consequences of the Eurozone's crisis, the European Union has implemented a new crisis management framework, which, however, is not immune to trials. The present paper follows a tripartite structure and begins by examining the causes of the Eurozone's crisis and draws its lessons. Second, it examines the reforms of the new crisis management framework and highlights their key challenges. Third, in light of these lessons and challenges, a return to three ‘fundamentals’ is advocated and the case of enhancing the position of the European Union within the area of international financial regulation is built to highlight how this is an optimal policy area for addressing the endemic weaknesses of the Eurozone and how this can contribute to securing a sustainable growth. Copyright © 2014 John Wiley & Sons, Ltd.     

Democracies and Deficits: Prospects for Fiscal Responsibility in Democratic Nations

The financial crisis had significant implications for the fiscal positions of OECD. As nations seek to cope with the economic contraction, budget deficits and debt have risen to near record postwar levels. As the crisis in Europe and other advanced economies has deepened, fiscal consolidation will have to be coupled, and even preceded, by actions to jump‐start crippled economies. Nonetheless, when fiscal consolidation becomes necessary, nations that procrastinate by waiting for a crisis to provide cover for the politically hard choices will pay a steep price indeed both economically and politically. Many in the academic and policy community have raised questions about whether advanced democracies have the political wherewithal to respond to gathering fiscal pressures through early and timely action. Recent fiscal actions in advanced nations suggest that democracies are not doomed to wait for market shocks and crises. Rather, leaders have shown that fiscal sacrifice can be achieved in ways that promote electability. In this article, we discuss the impetus for democratic fiscal actions and the strategies used to gain public support.     

The Hard Road to Fiscal Responsibility

The paper describes the current fiscal problems of the United States showing that without significant changes in revenue and spending policies, the country is headed for a sovereign debt crisis similar to that afflicting countries in Southern Europe. Numerous committees and commissions have offered policy options that would stabilize the debt–GDP ratio in the long run. The proposals of the President's National Commission on Fiscal Responsibility and Reform and the Bipartisan Policy Center's Deficit Reduction Task Force are described in detail. Elected politicians have not been enthusiastic about the work of these bodies. Only the House has passed a budget that would stabilize the debt and that proposal is analyzed as is the president's response. The paper goes on to describe the Budget Control Act that was passed after the debt limit debate in the summer of 2011.     

Fiscal Austerity and Rental Housing Policy in the United States and United Kingdom, 2010–2016

After the 2008 global financial crisis, both the United States and the United Kingdom introduced austerity policies targeted at particular elements of their national budgets. The purpose of this article is to compare the nature of this retrenchment; the similarities and differences in how it was implemented; and its initial impacts on one of the expenditure areas particularly affected: affordable rental housing programs and housing support for low-income households. Using a wide range of data sources, we find evidence of political and fiscal policy analogies in the timing and forms of the initial policy choices and how these were modified in the face of economic and political pressures. There are considerable similarities both in the instruments used to reduce housing expenditures and in the early impacts on support mechanisms and recipients. However, we find different histories and trajectories of support between the two countries that suggest that the longer term differences in outcomes may be more important.