Debt and macroeconomic stability case studies
Others have suggested that greater equity comes at the expense of lower growth and that there is a trade-off between growth and equity when it comes to poverty reduction. While growth is almost always accompanied by a reduction in income poverty, and negative growth is accompanied by an increase in poverty, for any given growth rate the impact on poverty can vary substantially. Source: Eurostat. Our Macroeconomic and Debt Sustainability Expertise We take a holistic approach to global debt sustainability strategies, with services including: Assessment of economic outlook and risks in Emerging Economies, at individual country and regional level. This imposes an automatic discipline upon domestic monetary policy. Macroeconomic Stability and Economic Growth Broadly speaking, two considerations underlie macroeconomic policy recommendations. For instance, using data on sovereign credit default swap CDS spreads for 26 emerging market economies, Remolona, Scatigna, and Wu show that sovereign spreads can be decomposed into a default premium and a risk premium, as assumed here. The reduction in the risk premium elasticity was not, by itself, a result of a more accommodative monetary stance in the euro area, at least not initially. While faster growth in agriculture may address rural poverty in the short-term, reliance on agricultural activity may also intensify output variability, which, in turn, would contribute to increasing rather than decreasing poverty. Tax Policy The best tax systems typically include most or all of the following elements: A broad-based consumption tax, such as a VAT, preferably with a single rate, minimal exemptions, and a threshold to exclude smaller enterprises from taxation. Excise taxes should apply to petroleum products, alcohol, and tobacco; should be collected at the point of production or import; and should apply equally to domestic production and imports.
Next, we use the Irish debt crisis as an example to illustrate how fiscal policy can avoid or escape from vicious debt cycles when confronted with debt sustainability concerns.
Specifically, let be the known probability density function of. Countries should begin by assessing in a frank manner their administrative capacity at both the national and subnational levels to deliver well-targeted, essential public services in support of poverty reduction.
Particularly, a reduction in household wealth due to default would be perfectly offset by a decline in the expected present discounted value of future tax obligations.
Economics case studies with answers
How Shocks Harm the Poor: Transmission Channels Credit markets, as well as safe asset markets for appropriate saving, are major instruments for coping with income volatility. The structure of credit markets can also affect the poor indirectly: Firms may find that access to credit is typically collateralized. For example, many low income countries have a narrow export base, often centered on one or two key commodities. Removing Market Distortions and Distortive Policies In addition to pursuing favorable economic policies and putting in place appropriate social safety nets, there are specific structural reforms that governments can undertake to insulate the poor from the adverse consequences of shocks. The VAT should cover agricultural products and inputs, subject to the threshold, which will exclude small farmers. Indeed, evidence shows that successful disinflation episodes have typically been accompanied by sizable and sustained fiscal adjustment Phillips, Such nonlinear effects are found to be stronger for countries with a poor fiscal track record. Rather, there is a continuum of various combinations of levels of key macroeconomic variables e.
To the extent that some revenue provisions may be regressive, they should be offset through the expenditure system e. In effect, control over monetary policy is surrendered to the central bank of the country whose currency has been chosen as the peg—typically a low inflation country—which, in turn, imparts credibility to the domestic policy objective of achieving low inflation.
Revenues should be raised in as economically neutral a manner as possible, while taking into consideration equity concerns and administrative capacities see Box 4.
Therefore, governments should seek to determine a distribution of tax burdens seen as broadly fair rather than use the tax system to achieve a drastic income redistribution.
These studies, however, establish association, but not causation.
Forecasts of how monetary, fiscal, and other policies will develop, based on our internal methodology, and available publications. External shocks can be particularly detrimental to the poor because they can lower real wages, increase unemployment, reduce nonlabor income, and limit private and net government transfers.
This assumption is in line with Borri and Verdelhanwho show that, in bad times when consumption is low and stochastic discount factors high, investors become more risk averse and require, not only a default premium, but also a risk premium for the risks they bear.
What are the implications of these empirical findings for macroeconomic policy?
Third, and most important, the framework should be simple enough that government officials can use it on their desktop computers.
based on 69 review