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Maximizing Fiscal Policy Effectiveness: Balancing Ease and Expenditures

Explore the effectiveness of fiscal policy in counter-cyclical measures, focusing on short and long-term pressures, reforms for efficiency gains, and country-specific considerations. Analyses include cyclical behavior in the EU, Romania's monetary policy, & initiatives for fiscal management improvement. It highlights the need for performance-based budgeting to enhance fiscal policy outcomes.

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Maximizing Fiscal Policy Effectiveness: Balancing Ease and Expenditures

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  1. Fiscal Policy: between Fiscal Ease and Increasing Expenditures-some considerations-Catalin PaunaWorld BankBucharest, June 14, 2016 Article IV: Economic Policies for Sustainable Growth Seminar Hosted by the National Institute for Statistics

  2. Content • Cyclicality of fiscal policy • Short term fiscal pressures • Long term fiscal pressures • Institutional and process reforms for efficiency gains

  3. Industrial countries pursue counter-cyclical fiscal policies • Pro-cyclical in emerging countries (“when it rains, it pours”) • Acyclical/counter-cyclical in industrial countries • Yet, about a third of emerging countries have graduated Source: Prof. Carlos Vegh (Johns Hopkins University)

  4. Andrei More than half of the EU members were pro-cyclical in the last ten years Cyclical behavior of the fiscal policy in the EU (2005-2015) Country correlation between the cyclical components of real government expenditure and real GDP Is fiscal policy an effective counter-cyclical tool? It depends on a country’s characteristics: exchange rate regime, debt level, openness, cyclical position, and type of spending (public consumption versus public investment) Source: World Bank

  5. Andrei Romania’s monetary policy has become counter-cyclical Source: Vegh (2015)

  6. In the short run the challenge is to contain the fiscal deficit Fiscal deficit (% of GDP) Source: AMECO • Others: • Improved tax compliance • Investment budget (incl. PNDL)

  7. Long term fiscal pressures are significant • To alleviate them: • Private provision of public goods/services • Efficiency gains (ex. centralized procurement) • Higher taxes (?)

  8. Reform initiatives to improve public fiscal management • Revenue side • Modernization of ANAF • Expenditure side • Spending Reviews Unit • Work on the concept of program-based budgeting • Centralized procurement in health • Strengthen linkages between planning, policy and budgeting • Unit for Evaluation and Monitoring of Significant Public Investments (UEIP) • Delivery Unit (not permanent) • Strategy Unit in Chancellery of the Prime Minister • Institutional Strategic Plans of ministries • Reform of SOEs • Corporate governance framework • Accelerate recruiting of boards and managers (!) • IPOs/privatizations?

  9. Conclusion It is time to connect the dots: performance-based budgeting

  10. Thank you

  11. Is fiscal policy an effective counter-cyclical tool?

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