Following failure of the stimulatory policies post the 2008 financial crisis and the resulting instability of the Euro, national fiscal consolidation with real sanctions for non-compliance has become a key focus of most governments as they address escalating budget deficits and rapidly rising public debt. The problem is that agreement by central governments to adopt national fiscal rules, whether self-imposed or imposed by some supranational institution, leaves unaddressed how such rules and sanctions should be adopted by (or imposed on) sub-central and local governments. To date, the primary focus has been on whether the encouragement given over recent decades to fiscal decentralisation has worsened public debt levels and made national fiscal consolidation by central governments more difficult. This article argues that what is missing from this discussion is attention to the intergovernmental institutional arrangements and how they and their reform are potentially crucial to both national fiscal consolidation and ensuring retention of the benefits of fiscal decentralisation.

For several years leading up to the 2008 financial crisis, Australia registered a public surplus, and this was generally interpreted as the result of responsible fiscal policy. However, since the outbreak of that crisis, no such fiscal balance has again been attained, giving rise to a range of explanations from the political incapacity of governments to the weak economic behaviour characterising the post-crisis era. Noteworthy in any case is that analysts have failed to cite the importance of a factor that was key to reaching pre-crisis surpluses: the vertiginous growth of private debt. This work argues that it was precisely the intense granting of bank loans and consequent increased demand from the private sector that boosted economic activity and led to the generation of public income sufficient to feed the fiscal surpluses of that period. Indeed, according to the proposals of Wynne Godley, this would have been the only way to register a public surplus in a context of current account deficits, typical of the Australian economy. This paper considers whether Australian private debt played a significant role in achieving fiscal surplus by way of a review of the Australian real estate boom and public accounts from the 1990s onward, also estimating an econometric model of autoregressive vectors to explore the link between these two variables. The results obtained appear to corroborate the hypothesis: severe private borrowing contributed to Australia’s fiscal surpluses. This finding has significant implications for budgetary policy.

Debate around Wales’ place in the United Kingdom has intensified over recent years, with radically differing visions for the union of the Welsh and UK governments emerging alongside growing (though still minority) support for Welsh independence. This article argues that these constitutional debates must be considered alongside Wales’ current fiscal position. Wales’ estimated fiscal deficit is reflective of long-standing economic underperformance as part of the UK, which we argue is unlikely to be addressed under current economic, fiscal and constitutional arrangements. On the other hand, it also suggests a difficult economic outlook for an independent Wales, which would require tough fiscal and economic choices to address Wales’ apparent balance of payments deficit.

Both the physical and transition-related impacts of climate change pose substantial macroeconomic risks. Yet, markets still lack credible estimates of how climate change will affect debt sustainability, sovereign creditworthiness and the public finances of major economies. We present a taxonomy for tracing the physical and transition impacts of climate change through to impacts on sovereign risk. We then apply the taxonomy to the UK’s potential transition to net zero. Meeting internationally agreed climate targets will require an unprecedented structural transformation of the global economy over the next two or three decades. The changing landscape of risks warrants new risk management and hedging strategies to contain climate risk and minimise the impact of asset stranding and asset devaluation. Yet, conditional on action being taken early, the opportunities from managing a net zero transition would substantially outweigh the costs.

Socio-natural disasters remain underexplored events in economic history, even though they stress societies in several ways and are known for their relationship with institutional change. In this paper, we explore this issue showing that major earthquakes in Chile have become a window of opportunity for important fiscal reforms. Our findings indicate that there are two mechanisms to explain this relationship: first, reconstruction demands greater state expenditure and intervention; and second, the emergence of narratives that justify these reforms, such as patriotism and solidarity. However, data show that in the case of Chile, changes following disasters have had little impact on the overall tax structure of the country, and the historical preference for indirect taxes has been maintained, with limited power to impose taxes on high-income groups.

Qing China represents a counterfactual to the early modern European history of fiscal expansion in the wake of warfare. In response to the staggering costs of suppressing the White Lotus Rebellion (1796–1804), the Jiaqing Emperor sought to solve the empire's fiscal problems by tightening bureaucratic control over an overstretched system of treasury finance. However, Jiaqing's policy of austerity and retrenchment was not simply an expedient in times of fiscal strain, but deeply rooted in ideological struggles over taxation that began in the eighteenth century. It was an expression of hardline fiscal conservatism, which held fixed revenue quotas sacrosanct and which I call quota-ism. This policy had dire consequences for the ability of the Qing regime to respond to external shocks and to fulfill its sovereign tasks – war, river conservancy and famine relief. It contributed to the bankruptcy of Qing government finance by the time of the Opium War.

The main goal of the Norwegian pension reform of 2011 is to improve long run fiscal sustainability, not least through stronger labour supply incentives. We assess to what extent the reform is likely to live up to these intentions. To this end we combine a dynamic microsimulation model, which includes a complete description of the Norwegian population and the pension system, with CGE-modelling of the effects on all government revenues and expenditures. We find that the reform is likely to make a great fiscal impact in the long run, and higher employment plays an important role in this respect.

This paper looks at some of the key fiscal questions related to Scottish independence, drawing on detailed analysis of household survey data, official data on public spending and revenues, and using a model of the UK and Scotland's public finances over the next half a century. We examine how and why public spending on, and revenues raised from, Scotland differ from the average across the UK, and how Scotland's fiscal position might be expected to evolve over the next 50 years under current policies.

For most of the twentieth century, Argentina solved the macroeconomic policy trilemma through domestic monetary sovereignty. This article illustrates how the need to finance deficits was behind Argentine sovereignty. We test the hypothesis of fiscal dominance between 1875 and the approval of the Austral Plan in 1991 and find that deficits drove money creation in the long run. The article also reveals how fiscal dominance, in a scenario of increasing currency substitution, helps to explain the dynamics of Argentine inflation in the second half of the twentieth century.

Dans cet article, nous proposons un modèle théorique simple dans lequel l'impact du déficit budgétaire sur les dépenses publiques d'investissement dépend du niveau de dette publique (en pourcentage du PIB). Lorsque la dette publique est faible, l'impact du déficit est positif, car la charge de la dette peut être absorbée par une diminution des dépenses de consommation. Lorsque la dette est très élevée, en revanche, il n'est plus possible de réduire les dépenses de consommation, et l'ajustement s'opère par les dépenses d'investissement, de sorte que la relation entre déficit et dépenses publiques d'investissement devient négative. Une analyse empirique menée dans un modèle économétrique avec effets de seuil en panel sur 22 pays de l'OCDE vient confirmer cette non linéarité.

Fiscal discipline is as much needed as monetary discipline. Many countries have attempted to counter the deficit bias by adopting fiscal rules that typically set a limit to their annual budget deficits. The record is not satisfactory; rules are either too lax or too tight and then ignored. This article suggests that the solution is to adopt the approach followed by inflation targeting central banks, with great success. Independent and accountable Fiscal Policy Committees, given the task of achieving debt targets and the authority to decide - or recommend - annual deficits, will be free from the deficit bias. This will allow them to exercise discretion in the short run while delivering debt sustainability in the long run.

Au moment même où le processus d'intégration monétaire européen se rapproche d'échéances importantes, plusieurs pays se trouvent dans une situation d'endettement préoccupante. La réduction des déficits et de la dette publique est devenue un des principaux objectifs de politique économique et ce, d'autant plus que le Traité de Maastricht retient, parmi les critères de convergence, un ratio Déficit/PNB de 3% et Dette/PNB de 60%. Un des arguments qui plaident en faveur d'un effort immédiat est l'impact attendu du vieillissement démographique sur le niveau des dépenses sociales. Ce papier étudie ces questions à l'aide d'un modèle calculable à générations imbriquées appliqué à l'économie belge. On montre que le respect du critère des « trois pour cent » n'implique pas nécessairement la baisse du ratio d'endettement. Il apparaît également qu'une politique de taxation modérée, mais continue sur longue période, constitue la formule qui affecte le moins le bien-être et qui minimise les distorsions sur le marché du travail et la croissance.