Volume 16, Issue 1

Climate change will pose a major challenge for humanity in future decades. Central to the policy debate are its implications for the public finances and the conduct of fiscal policy more generally. This editorial outlines the budgetary effects, the regulatory and standard-setting challenges, internal governmental organisational changes, and the resource reallocation implications of policies to control climate change and their efficient implementation. The scope for further work – both theoretical and empirical – to bridge existing gaps in the related economics literature is then discussed. Finally, the editorial outlines research questions and first steps on an agenda for policy-relevant research.

The Reserve Bank of India has put 11 public sector banks under prompt corrective action and is planning to put three more where public sector banks constitute 68.9% of the total asset of the Indian banking industry based on 2018 figures; this raises a genuine concern for the financial health of the Indian banking sector as a whole. Under these considerations, this study is conducted to estimate the survival of banks based on ownership and size and uses the Cox proportional hazards model. This study has not found any significant difference in the failure risk of both public and private sector banks based on ownership. However, the study found a significant difference in the failure risk of banks based on size. The smaller banks are indeed at a higher risk of failure than larger banks. The findings of this study can be used to create an early warning system for smaller banks in India.

Using a prefectural level data, we shed the light on the knowledge spillovers within three mega-economic zones (MEZs) in China by adopting spatial econometric methods. We first examine the spillovers within all regions, and then the spillovers within the MEZs, and finally the spillovers from core cities. The results show that there are pronounced spillovers between cities in China, which is stronger between cities with high techno-proximity. Moreover, spillovers within the MEZs are found to be stronger but unequal. Spillovers between cities in the Pearl River Delta are the greatest among the MEZs, while the spillovers within Jing-jin-ji are the lowest. Eventually, Shenzhen outperforms Shanghai and Beijing in knowledge spillovers, whereas Beijing may even adversely affect the innovation of neighbors.

The study empirically tests whether regional differences in personal taxes (Personal Income Tax, Wealth Tax, and Inheritance and Gift tax) have had some influence on the decision of the richest Spanish taxpayers to change their residence. The estimates use the Personal Income Tax (IRPF) Panel database provided by the Ministry of Public Finance. The study offers evidence that regional tax differences affect the decision to change residence of the top income taxpayers and also that this decision is also affected by other attractiveness and opportunity factors offered by the regions, and by certain characteristics of the individuals. However, the marginal effects are very slight, except for the coefficient of the variable showing regional differences in IRPF: If the difference between average regional IRPF rates increases by 10 percentage points in favour of the other regions, the probability of a top 1% taxpayer changing its residence increases by 11.2 percentage points. The study also documents the importance of the Community of Madrid in the relocation decisions of rich taxpayers. Finally, the study finds that the behaviour of taxpayers aged 65 years and over in the top 1% does not seem very different from that of all taxpayers in the same income bracket.

One of the most important tasks in China’s supply-side structural reform is to effectively clean up zombie firms. Using industrial firm-level data in China from 1998 to 2007, we identified zombie firms in Chinese industrial sectors. Based on the identified zombie firms, we measured the survival duration of zombie firms and empirically studied the effect of fiscal subsidies on the survival duration of zombie firms by using survival analysis. Results revealed that fiscal subsidies significantly lengthened the survival duration of zombie firms. Specifically, fiscal subsidies not only reduced the possibility of zombie firms exiting the market, but more importantly, they reduced the possibility of zombie firms’ resurrection. Thus, fiscal subsidies do not contribute to the “death” or “resurrection” of zombie firms. These results are robust despite changing the identification method and the survival analysis method, and considering the endogeneity of fiscal subsidies. Our findings show that we should adhere to market-oriented mechanism in disposing zombie firms and cut off the channels that government transfuses to zombie firms by fiscal subsidies.

This study replicates “Leigh A., & Jencks C. (2007). Inequality and mortality: Long-run evidence from a panel of countries. Journal of Health Economics , 26 (1), 1–24” study of the relationship between income inequality and mortality. L&J find no evidence that income inequality is related to country-level mortality. Their analysis is based on two-way fixed effects specifications applied to a panel of 12 countries over periods ending in 2003. After reconstructing L&J’s data from original sources, I am able to closely reproduce their findings. When I use superior inequality data and extend L&J’s data to an additional 11 countries and 15 years, I confirm their results. When I use multiple imputation to increase the sample to full size, I again do not find a significant relationship between income inequality and mortality. As a result, I conclude that my replication exercise confirms L&J’s results. The new analysis provides consistent evidence for the view that income inequality is not significantly related to mortality.

The study analyses the asymmetric and nonlinear influence of oil price on exchange rates of South Asian countries in time–frequency framework using wavelet technique. For empirical analysis, monthly data are examined from July 1983 to June 2018. Wavelet coherence results show that the variables are in phase, i.e., oil prices and exchange rates are positively correlated. It suggests that oil price influences exchange rates positively. The study also investigates the causal association between oil price and exchange rates using a nonlinear causality test. The results of nonlinear causality show that there is bidirectional causality between oil price and exchange in Bangladesh and India and unidirectional causality from oil price to exchange rate in Pakistan and Sri Lanka. The findings provide some important recommendations to investors and policy makers.

This article revisits the Portfolio Theory of Inflation (PTI) proposed in my original work published earlier (Bossone, B. (2019, 4 June). The portfolio theory of inflation and policy (in)effectiveness. Economics Journal , 1–25. Article No. 2019-33.), with a view to further articulate its findings and implications. The article adds to the micro- and macro-foundations of the PTI model of the economy, framing the portfolio choices of global investors more rigorously, providing richer analysis of their macroeconomic effects, and in the process also correcting errors contained in the original PTI formulation. The article explores additional dimensions of how capital allocation choices by global investors interact with government macro-policies, and further studies how such choices shape the space available to country authorities for active macro-policies. The article further evaluates the results from the revisited model on the dynamics of exchange rate, inflation, and output following macro-policy shocks, and appraises the implications of the PTI for macro-policy effectiveness when due consideration is given to stock variables, as opposed to flow variables only, in the context of highly internationally financially integrated economies. Finally, the article considers what is new about the PTI as a theory of inflation and clarifies some of its possible misinterpretations.

This article addresses the impact that the previous economic crisis had on Spanish economy, focusing on the effects on employment. Therefore, the data on the employed population drawn from the economically active population surveys are broken down by age groups, to analyse the 2008 financial crisis. The model created makes it possible to quantify the losses in production and employment in all sectors, highlighting construction, manufacturing, real estate, and professional and administrative activities as the most affected sectors due to the fall in youth employment. The results obtained allow different employment policies to be focused on sectors most affected by the economic crisis and show that crises do not equally affect all works, because younger workers have suffered disproportional job losses.

In this study, we aim to analyse financial literacy as a driver of financial wellbeing and economic growth in three of the most recent EU Member States, namely Romania, Bulgaria, and Croatia. Our particular interest in studying more in-depth these three countries is generated by their difficult pathway in the transition to the Euro and economic convergence on one side and by the limited analysis carried out so far in relation to them on the other side. Various studies indicate that financial literacy is associated with wealth accumulation, and financial education can help achieve economic growth. To conduct the empirical analysis, in this study, we have used primary data provided by the OECD for our specific research purposes. The raw data were collected in a survey carried out in 2019 in seven South Eastern European countries reaching over 1,000 respondents for each country. We used two-stage least-squares regression to test our hypothesis and cluster analysis for comparisons among countries. Conclusions of our research reveal the main differences between countries in terms of financial literacy and reverse causality between financial literacy and economic growth for the analysed countries. Finally, the study gives some insights into the future design of public policies on financial education in these countries.

This article analyses the evolution over time of perceived corruption for a large set of countries worldwide. To proxy corruption, we use the recently proposed Bayesian Corruption Index (Standaert, S. (2015). Divining the level of corruption: A bayesian state space approach, Journal of Comparative Economics , 43(3), 782–803). We employ the test developed by (Phillips, P., & Sul, D. (2007). Transition modeling and econometric convergence tests. Econometrica, 75, 1771–1855) that enables the endogenous determination of convergence clubs for countries over time. Having divided countries into convergence clubs, we explore whether each club differs from the others in terms of their competitiveness ranking. In particular, drawing on the 2019 Global Competitiveness Report, we focus not only on the global competitiveness score, but also on the first and the fifth pillars of competitiveness: institutions and health, respectively. Mean and median scores for clubs confirm the general rule that low perceived corruption levels tend to be associated with high-income countries with established democracies, high-quality healthcare systems, and relatively low-income inequality. However, countries such as Spain and Italy, which are innovation-driven economies with excellent scores in the health pillar, are in the worst club for perceived corruption, suggesting there are additional idiosyncratic aspects that could drive perceived corruption levels.

This study analyzes the relationships between domestic and foreign output gaps, current-account imbalances, and real effective exchange-rate (REER) misalignments. We first set up a theoretical framework based on the elasticities and absorption approaches of the balance of payments to derive and clarify these relationships. Next, we perform panel VAR estimates in a sample of 18 advanced economies between 1986 and 2017. We find an inverse relationship between domestic output gaps and current accounts with reciprocal influences between the two variables. Moreover, we observe that increases in current accounts generally boost both temporary and structural growth. Additionally, our results indicate that REER misalignment shocks cause reactions of the opposite sign on the current account and on cyclical economic growth. We also find evidence of higher growth resulting in a real exchange-rate appreciation, which supports the Balassa–Samuelson hypothesis.

This article studies the implications of highly skilled labor international migration in a two-country dynamic stochastic general equilibrium model. The model considers three types of workers: Science, Technology, Engineering, or Mathematics (STEM) workers, non-STEM college educated workers, and non-college educated workers. Aggregate productivity in each economy is a function of innovations, which can be produced only by STEM workers. The model predicts (i) the existence of a wage premium of STEM workers relative to non-STEM college educated workers, (ii) the skill wage premium is higher in the destination country and increases with positive technological shocks, (iii) a reduction in migration costs increases output, wages, and total labor in the destination country, with opposite effects in the country of origin, and (iv) high skilled immigrants reduce skilled native labor and do not affect unskilled labor. Finally, a migration policy designed to attract STEM workers generates similar effects to a positive aggregate productivity shock.

This article studies the responses of real wages and labour market flows of immigrants in Spain for the period between 1999 and 2019. By using Labour Force Survey microdata, I examine the cyclicality of job-finding and job-separation rates for immigrants and natives over the long Spanish economic expansion and the sharp contraction. During the expansion, 1999–2007, the job-finding rate was higher for immigrants than for natives, but both rates converged to a lower level after the Great Recession took place in 2008. I also find that the impact of the crisis on the job-separation rate was more than three times as high for immigrants than for natives. By using longitudinal social security data, I find that wage cyclicality is higher for immigrants than for natives: a one percentage point increase in the unemployment rate is associated with a 0.61 and 0.85% drop in real wages for natives and immigrants, respectively. However, these differences only occur among low-tenure workers. This study provides novel empirical evidence to enrich macroeconomic theories on the interaction of economic cycles and the impact of immigration.

Central bank independence has been championed on the grounds that it avoids political business cycles, the time-inconsistency problem of discretionary monetary policy, and political conflicts. However, after the financial crisis, central banks have resorted to unconventional monetary policies and embraced additional tasks, making monetary authorities more exposed to political interference. This new reality has put into question the long-lasting consensus on the desirability of central bank independence. We add to this debate a new argument in support of that independence, namely, it internalizes the fiscal spillovers that arise in a monetary union, which is not a full fiscal union.

The aim of this study is to analyse the fiscal-budgetary measures, which have been taken by almost all governments around the world, including EU countries, in an attempt to limit the negative impact of the pandemic blockade. In most cases, these measures concerned the granting of technical unemployment, the postponement of tax payments, and the suspension or postponement of loan instalments or their maturity. The present study focuses especially on tax and expenditure measures that EU countries have introduced in response to the COVID-19 crisis. With this purpose, a paired sample t -test and multiple linear regression are used based on balanced panel data for the 27 EU countries for the period 2000Q1–2020Q3. The obtained results show that COVID-19 crisis had a significant negative impact on GDP growth. At the same time, a significant increase in public debt and government deficit occurred due to COVID-19 crisis. However, resuming the findings, the intensity, and implicitly, the effect of these measures depends on the specifics of each economy.

The gold standard was a monetary system based on fixed exchange rates, whereby domestic prices were pegged to the international price level and a high level of control had to be exercised over the money supply. This meant that fiscal discipline also had to be maintained for a country to remain on the gold standard. In times of crisis, countries had to leave the gold standard or use internal devaluation. This article seeks to gain an understanding of the role of the different economic policies in Italy and Spain at the end of the nineteenth century and the beginning of the twentieth century and how they were used in response to reductions in GDP. This article considers fiscal policy, monetary policy, and exchange rate policy estimating a VAR model. Results show how the exchange rate depreciation had positive effects on the Spanish economy during 1870–1913, while it only helped the Italian economy in specific periods to overcome crises. The expansive monetary policy was necessary for both countries to maintain public expenditure, which in turn allowed a smoothing of the GDP fluctuations. None of these policy options would have been available under the gold standard.

The determination of the equilibrium real exchange rate is one of the most important issues in open economy since the policymakers are concerned about predicting and monitoring misalignments and they are usually associated with current account problems and currency crises. To the best of my knowledge, this is the first time a study provides empirical evidence on the impact of deviations from the long-run sustainable real exchange rate equilibrium on real economic growth rate applying panel ARDL model (pooled mean group, mean group and dynamic fixed effect estimators) for the 27 European countries during the 2000–2016 period. This study applies the EQCHANGE database developed by Couharde et al. (2017) to obtain the real effective exchange rate (REER) misalignments according to the behavioral equilibrium exchange rate approach for each country. One of the main objectives is to determine the relationship between REER misalignments and economic growth trying to differentiate between short- and long-run effects. To this purpose, a neoclassical growth model is considered controlling for several economic variables such as gross capital formation, degree of openness, human capital, inflation rate, and population rate.