There was a question here the other day, I think from Jim Devine, about the
aggregate global fiscal stance. It just so happens that the new IMF World
Economic Outlook (May 1995) is out, with its estimate of what the Fund
calls "fiscal impulse" (FI). For its definition of FI, the IMF points to
the entry in the New Palgrave Dictionary of Money and Finance, where we
read: "Conceptually, the fiscal impulse is defind as the change in the
government budget balance resulting from changes in government expenditure
and tax policies. It differs from changes in actual measures of the fiscal
balance...by attempting to remove the effets of other factors ... [such as]
the cyclical position of the economy, the effects of inflation on
government interes payments, changes in unemployment compensation and other
influences." It does attempt to include fiscal drag, coming from movement
into higher personal and business tax brackets because of rising incomes,
and the effect of some automatic stabilizers. Mere cyclical increases in
unemployment benefits, however, are excluded.
Anyway, here's a brief history of the FI, pieced together from various
issues of the WEO and the New Palgrave article, for the US and the G7 as a
whole. Though they don't say so explicitly, I'm pretty sure the US
projection for 1995 is based on the official OMB and CBO figures, and not
any budget changes now contemplated in Congress.
Note that the G7 ex-US have been either neutral or contractionary for most
of the last 17 years. The US was the major exceptio from 1982-85, but since
then, aside from 1990, US policy has been flat to contractionary.
By the way, this issue of the WEO has a box arguing that severe fiscal
contractions can be expansionary, citing the examples of Denmark and
Ireland during the 1980s, and recommending similar treatment for Italy and
other countries. Any PEN-Lers have any comments on these examples? The body
of the report also recommends less dramatic fiscal "consolidation" for all
countries, and says that "to assure that inflation does not accelerate, the
need for a moderation of growth is particularly pressing in the United
States, where economic slack has been fully absorbed." It welcomes recent
signs of slower US growth as desirable movement towards that desirable end.
Finally, there's another box that celebrates reform in New Zealand.
Rogernomics for the World!
FISCAL IMPULSE, GENERAL GOVERNMENT, PERCENT OF GDP
US G7 G7 ex-US
1978 -- 0.7 1.0
1979 -0.5 -0.4 0.1
1980 0.7 -0.2 -0.5
1981 -0.4 -0.6 -0.3
1982 0.4 -0.1 -0.3
1983 0.6 0.1 --
1984 0.7 0.3 0.1
1985 0.7 0.1 -0.2
1986 0.1 -0.2 -0.3
1987 -0.7 -0.6 -0.3
1988 -- -- --
1989 -0.5 -0.5 -0.5
1990 0.7 0.4 0.2
1991 -- -- -0.2
1992 -- 0.1 0.1
1993 -0.6 -0.1 0.4
1994 -0.8 -0.3 0.2
1995 -- -- -0.3
Notes: General government includes state and local as well as central.
Positive numbers are stimulative; negative, contractionary. Double dashes
indicate numbers with an absolute value < 0.1. 1995's G7 ex-US figure comes
entirely from the UK's -2.2%; all other countries are flat.
Doug
--
Doug Henwood
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