We explore the effects of fiscal policy shocks on aggregate output and inflation. We use the Bayesian econometric methodology of Baumeister and Hamilton applied to the fiscal structural vector autoregressive model to evaluate key elasticities and fiscal multipliers using U.S. data. In our baseline specification that ends before Covid pandemic, the government spending multiplier is equal to approximately $0.57$ and tax multiplier is approximately $-0.35$ after one year. The short-term output elasticity of government spending is statistically insignificant and the output elasticity of taxes is approximately equal to $2.26$.

This study utilizes a Bayesian Dynamic Stochastic General Equilibrium model, calibrated with Chinese data, to assess the impact of public investments, which account for about 16.2% of China’s GDP. Despite an expected public capital stock of 256% of GDP, based on a 4.6% depreciation rate and a 0.73 efficiency rate of public investment (emerging-economy estimate), the actual figure stands at 152%. This significant discrepancy underscores the inefficiencies in public investments, with 43% of public investment expenditures enhancing the capital stock. The output elasticity (productivity) of public capital is estimated at just 3%, substantially lower than the previously estimated 8% for emerging economies, and has declined to 2% in the post-2008 period. Simulations based on these efficiency and productivity metrics reveal that the output multiplier of public investment is 0.7. China’s public investments reduce TFP, crowd out private investment, and raise the public debt-to-GDP ratio in the medium term.

Party competition sometimes resembles an auction, where parties seek to ‘buy’ elections through promises of economic largesse. In this article, I argue that whether parties engage in this practice will depend on political circumstances, such as the level of ideological competition. Incentives to promise more to voters will also vary depending on a party's electoral prospects: for parties that expect a significant level of government responsibility, promising too much is a risky strategy. I test these arguments by focusing on the spending commitments in party manifestos from 20 countries over the period 1945–2017. In line with expectations, parties tend to make more expansionary election pledges when ideological competition is more muted. In addition, left‐wing parties’ spending commitments are found to be influenced by their projected seat shares (based on opinion polls from before the start of the election campaign) relative to their competitors. Specifically, the stronger a left‐wing party's electoral prospects, the more fiscally conservative it tends to be, and vice versa.

Fiscal discipline, the sustainable balancing of government outlays with revenues, is one of the most extensively theorized and empirically investigated objects of inquiry in political economy. Yet, studies covering European Union (EU) countries have mostly ignored the oversight of national budgets via the EU excessive deficit procedure. I explain why this surveillance engenders lower deficits and investigate its effects across all EU member countries. Results indicate that the impact of surveillance during budget drafting offsets that of a two‐year shortening of expected government duration, the addition of one party to a government coalition when debt is high, or a leftward shift in government ideology when the risk of replacement is low. Moreover, estimates from exact matching on treatment histories indicate that these effects peak after four to five years. These findings have important normative implications for democratic policy‐making in European countries and the fledgling EU‐wide fiscal policy.

Since the outbreak of the eurozone's sovereign debt crisis, a range of fiscal policy measures have been adopted at the European Union (EU) and national levels that have given rise to claims of a significant reinforcement of fiscal policy constraint. Given the prominence and reinvigorated political appeal of fiscal rules in the EU and beyond, it is disconcerting how little we actually know about the link between fiscal rules, budgetary outcomes and market behaviour. In this research note, the aim is to take stock of the existing literature and challenge its contribution to the current policy debate on the merits of fiscal rules. Specifically it will focus on problems linked to endogeneity, measurements and contextuality.

The European debt crisis has uncovered serious tension between democratic politics and market pressure in contemporary democracies. This tension arises when governments implement unpopular fiscal consolidation packages in order to raise their macroeconomic credibility among financial investors. Nonetheless, the dominant view in current research is that governments should not find it difficult to balance demands from voters and investors because the economic and political costs of fiscal consolidations are low. This would leave governments with sufficient room to promote fiscal consolidation according to their ideological agenda. This article re‐examines this proposition by studying how the risk of governments to be replaced in office affects the probability and timing of fiscal consolidation policies. The results show that governments associate significant electoral risk with consolidations because electorally vulnerable governments strategically avoid consolidations towards the end of the legislative term in order to minimise electoral punishment. Specifically, the predicted probability of consolidation decreases from 40 per cent after an election to 13 per cent towards the end of the term when the government's margin of victory is small. When the electoral margin is large, the probability of consolidation is roughly stable at around 35 per cent. Electoral concerns are the most important political determinant of consolidations, leaving only a minor role for ideological concerns. Governments, hence, find it more difficult to reconcile political and economic pressures on fiscal policy than previous, influential research implies. The results suggest that existing studies under‐estimate the electoral risk associated with consolidations because they ignore the strategic behaviour that is established in this analysis.

This article investigates fiscal policy responses to the Great Recession in historical perspective. It explores general trends in the frequency, size and composition of fiscal stimulus as well as the impact of government partisanship on fiscal policy outputs during the four international recessions of 1980–1981, 1990–1991, 2001–2002 and 2008–2009. Encompassing 17–23 Organisation for Economic Cooperation and Development (OECD) countries, the analysis calls into question the idea of a general retreat from fiscal policy activism since the early 1980s. The propensity of governments to respond to economic downturns by engaging in fiscal stimulus has increased over time and no secular trend in the size of stimulus measures is observed. At the same time, OECD governments have relied more on tax cuts to stimulate demand in the two recessions of the 2000s than they did in the early 1980s or early 1990s. Regarding government partisanship, no significant direct partisan effects on either the size or the composition of fiscal stimulus is found for any of the four recession episodes. However, the size of the welfare state conditioned the impact of government partisanship in the two recessions of the 2000s, with left‐leaning governments distinctly more prone to engaging in discretionary fiscal stimulus and/or spending increases in large welfare states, but not in small welfare states.

This note introduces the Comparative Independent Fiscal Institutions Dataset which contains information on the institutional characteristics of forty-four independent expert bodies that are mandated to monitor fiscal policy and performance. Based on coding of legislative documents, it describes the institutional design of IFIs in mainly developed countries at different points in time. It comprises indicators and indices on formal political independence, expert proficiency and powers to intervene into the budget process. I report empirical variations between different models of IFIs such as Fiscal Councils and Parliamentary Budget Offices.

Using the Irish experience of public investment and fiscal policy management over the last 25 years, we identify five core lessons. These concern (1) the need for sustained investment effort even when facing tough choices regarding public expenditure, (2) the importance of assessing the adequacy of public capital, (3) counter-cyclicality as an important principle of public investment, (4) crowding-in private investment and (5) the challenge for public investment caused by longer-term challenges such as the necessary climate transition. We also propose two overarching design suggestions for fiscal policy and investment management frameworks.

The 1970s oil shocks sparked high and persistent inflation in advanced economies, also tied to the collapse of the Bretton Woods international monetary system in 1971 that left monetary policy without a stable institutional reference framework. Only in the following decades did a new monetary regime emerge, centered on inflation targeting schemes adopted by independent central banks. Beyond this, other factors affected inflation persistence, namely wage-price spirals rooted in automatic wage adjustment mechanisms, and fiscal policies financed thanks to the regulatory requirement for the central bank to purchase unsold public debt. This article gives a concise analysis of the rationale and provides descriptive evidence of the role these institutional aspects played in the 1970s, suggesting how their evolution has reduced the likelihood of 1970s-style inflationary episodes today. A structural VAR-based counterfactual exercise confirms that absent wage and fiscal pressures inflation persistence would have been significantly lower.

This paper studies the dynamic relationship between economic growth, pollution, and government intervention. To do so, we develop a model that links pollution to the economy’s productive capacity, thereby capturing the feedback loops between economic activity, environmental degradation, and fiscal policy intervention. The model incorporates a pollution-sensitive damage function, taxes, and government spending while analyzing economic growth under different levels of government intervention. Therefore, the main paper’s contributions reveal that economies can achieve favorable outcomes with low or moderate government intervention, and that our results underscore the vital role of pollution mitigation policy in dynamically balancing economic growth with environmental sustainability.