Pe5e chapter 15 v1.0

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Pe5e chapter 15 v1.0

  1. 1. • Define fiscal policy and describe fiscal goals and instruments at the macroeconomic, sectoral and microeconomic levels • Discuss the evolution of views on the macroeconomic role of fiscal policy, focusing on the distinction between the Keynesian and structural approaches and the choice between discretionary and rules- based fiscal regimes • Distinguish between the various definitions of budget balance and explain the economic significance of each.
  2. 2. • Explain the importance of distinguishing between a cyclical and a structural budget deficit and between active and passive fiscal policy • Explain the fiscal consequences of the 2007–2009 international financial crisis and the ensuing Great Recession • Describe salient features of fiscal policy in South Africa with reference to theory, and against the backdrop of international experience and aspects of the performance of the South African economy • Describe some of the features of fiscal reform in sub- Saharan Africa in recent years.
  3. 3. Goals • Economic growth • Job creation • Price stability • Balance of payments stability • Price stability • A socially acceptable distribution of income • Poverty alleviation. Fiscal policy may be defined as decisions by national government regarding the nature, level, and composition of government expenditure, taxation and borrowing, aimed at pursuing particular goals.
  4. 4. Sectoral goals • Development of particular economic sectors • Pursuit of social goals Microeconomic goals • Improving efficiency • Combating poverty • Pursuing goals specific to particular geographical areas.
  5. 5. • Total government expenditure • Economic categories of consumption and capital expenditures • Total tax amount • Budget deficit • Financing the deficit • Expenditure votes and programmes • Mobilisation and allocation of public and private resources • Allocation of public and private resources • Different types of taxes and rates • Different dimensions of public debt.
  6. 6. • Keynesian approach – Fiscal activism/anti-cyclical fiscal policy – Automatic or built-in stabilisers – Passive fiscal policy – Active fiscal policy.
  7. 7. • Lags or time delays – Recognition – Decision – Implementation – Impact • Crowding out – Multiplier effect • Anticipation of systematic counter-cyclical policies – Ricardian equivalence theorem. • Political constraints • Stagflation.
  8. 8. • Supply-side economics • Characteristics – Public debt – Tax burden – Government spending.
  9. 9. • Numerical rules – Expenditure-limiting rules – Current-balance rules – Overall-balance rules – Public debt rules • Rules as binding constraints – Discretionary policy • Rules as credibility-enhancing commitment devices – Rational expectations hypothesis.
  10. 10. Fiscal transparency means being open to the public about the structure and functions of government, fiscal-policy intentions, the public-sector accounts, and fiscal projections . (Kopits and Craig, 1988).
  11. 11. Fiscal councils • Objective analysis • Independent projections and forecasts • Normative assessments.
  12. 12. National budget • Budget speech • Budget review • Components of the budget: – Expenditure • Contingency reserve – Revenue – Borrowing requirement – Financing.
  13. 13. • Medium Term Budget Policy Statement • Multi-year fiscal/expenditure planning • Multi-year budget – Formal, statutory multi-year appropriation of funds • Multi-year plan – Statement of intent – a reference framework for the annual budget • Medium-term expenditure framework – 3-year plan.
  14. 14. • After WWII: Keynesian policies • Late 1970’s: Focus on fiscal discipline • 1994 – 1997: Price stability • 1999: Growth through microeconomic reforms • 1996: GEAR strategy • Post 2001: More expansionary fiscal policy.
  15. 15. • Inflation targeting • Constitutional protection of the independence of the central bank • Formal numerical fiscal rules • Public Finance Management Act (1999) • Fiscal discretion.
  16. 16. • Improvement in budget balances • Reduced dependence on international trade taxes • Reductions in income tax rates • Broadening of tax bases • Reduced debt burdens due to – Faster economic growth – Accelerated debt relieve – Smaller fiscal deficits.

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