Commentary: Proposals for a New Fiscal Framework

Abstract

How did you go bankrupt?" "Two ways. Gradually, then suddenly."Ernest Hemingway, The Sun Also Rises (1926) [P]ublic opinion requires, justly perhaps, that a deliberate plan, and particularly a new plan, should not merely be better than doing nothing, but much better. A new plan is required to meet objections, which apply equally to the old plan. But which in the case of the latter custom has caused us to forget. The new plan is required to satisfy ideals of social justice much higher than we have been attaining without it. J. M. Keynes, How to Pay for the War (1940) Towards better fiscal policiesModern representative democracy is faced with the Whiggish directive to improve living standards with the main lever in possession of any government being its fiscal policy. That is its choice on how much to spend, tax and borrow and on what. The electorate is supposed to assess the alternate options offered by the political marketplace, and the set of offered policies that most closely match those of the electorate, or more precisely its median voter, will be the basis for the government's fiscal strategy (Persson and Tabellini, 1994). And yet once in office governments are not in control of events and must respond again and again to developments that cannot have been imagined only a few years earlier (e.g. Brittan, 1969). Our recent history alone has produced three extraordinary events in a dozen or so years that have in turn asked for flexibility, and then constrained the operation of fiscal policy: the Global Financial Crisis (GFC), the Brexit vote and the Covid-19 pandemic. As much as a politician wants to be seen as the saviour of the nation, they also do not wish to be seen as the person who suddenly bankrupted the state.There has repeatedly been a fine line between enabling those democratically elected to make a policy choice and the need to demonstrate a sound approach to the management of the fiscal purse strings

The Linkage Between Fiscal Policy and Financial Development: Exploring the Moderating Role of Institutional Quality in Emerging Economies

“…As a result, fiscal policy in SSA nations is espoused by increasing investment in infrastructure development, which lowers the overall finance rate (Estmann et al, 2021;Naeem et al, 2023). Fiscal policy has a negative and lowering effect on finance, according to studies (Chadha et al, 2021;Lawal et al, 2018). In the same way, the present findings contrast with the previous ones by Marfatia et al (2020) and Pan et al (2021), who concluded that fiscal policy has a good impact on finance.…”

“…The oil revenue and the exchange rate were also discovered to be favorably correlated with GDP. Chadha et al (2021) looked at the relationship between budgetary factors and economic growth in a different study, i.e., how these factors affect economic expansion. These findings supported past research that indicated the importance of fiscal policy for sustained economic expansion.…”

Beyond Binaries: Technocracy, Populism and Public Policy

“…The result was a widening wealth gap, besides increasing income inequality based on stagnating real wages for most people in low-wage jobs (e.g., Haldane, 2021). A policy mix that was too loose on the monetary side and too tight on the fiscal side contributed to the persistence of a low-growth, low-productivity and low-investment economic model (Chadha et al, 2021). The populist element of historically low-interest rates benefitting all mortgage holders was of a piece with the technocratic element of fiscal rectitude to ‘reassure global bond markets’.…”

“…That requires devolving not only decision-making powers but also spending and taxation powers, e.g., in the case of the UK, business rate retention or a share of income tax revenue. New fiscal frameworks (Chadha et al, 2021) and fiscal decentralisation for regional and local governments (McCann, 2022) should be principal priorities for policymakers.…”