Vinko Mustra (p)

Although most of the countries in the world are technically out of recession period caused by recent global crisis, the global economy and national economies are still severely affected. As a consequence it raised concerns about long-term (un)sustainability of public finances that has supported the implementation of budgetary consolidation measures, affecting both central and sub-central governments in many countries.

Although there are relatively large number of papers investigating the impact of fiscal consolidation on different aspect of economy (e.g. Castro 2007, 2011, Heim 2010a, 2010b, Agnello et al, 2016) this paper represent unique attempt of investigating the effects of fiscal consolidation implemented on central and sub-central level on regional inequalities.

We test the hypothesis that implementation of fiscal consolidation on central level has different effects on regional inequalities, then implementation on sub-central level.

In empirical part of the paper we explore the impact of fiscal consolidation on central and sub-central level on regional inequalities among EU member countries for period 1982-2009.

Two groups of variables are particularly important for this study: measure of fiscal consolidation and difference between central and sub-central component of the fiscal consolidation. Due to fact that recent literature recognizes problems with using cyclically-adjusted primary budget balance (CAPB) as a measure for fiscal consolidation we extend regional empirical literature by using a new database of fiscal consolidation introduced by Devries et al. (2011) that successfully tackles all this issues. For measuring the central and sub-central component of the fiscal consolidation we use share of the central and sub-central spending and revenues as a share of total public spending and revenues for the years when the fiscal consolidation has been realized in the new data base.

The results indicate that not only the structure of fiscal consolidation ( led by tax hikes or led by spending cuts) has different influence on regional inequalities, but also implementation of central and sub-central component of the fiscal consolidation. Finally, the paper highlights that fiscal consolidation is not only the matter of the public debt levels or economic growth, but also important regional issue.

Balázs Kotosz (p), Imre Lengyel

Following the Solow growth model, the convergence process appeared in the economic literature. However, it has become a hot topic through the work of Barro and Sala-i-Martin in the early 90s. Through the improvement of econometric methods, both beta and sigma convergence can be verified. We apply the methodology at regional level in 4 Eastern European countries (Czech Republic, Hungary, Poland, and Slovakia).
In our analysis, we use NUTS2/3 delimitation based on metropolitan regions’ distortion effects and functional urban areas suggested by the ESPON documents and introduced in several recent papers, and per capita GDP in PPS USD and chain linked volumes in euro data for the period of 2000-2014 was used with shorter sub-sample periods (2000-2004 as the before EU-accession period, 2004-2008 as the pre-crisis golden age, and 2010-2014 as the resilience period).
In the pilot survey, we concluded that while the per capita GDP almost doubled on the average in the reference period, with relatively high differences (less than 30% and more than 140% increase). On overall data neither beta convergence nor sigma convergence cannot be proved, instead we can observe the twin-peaks phenomenon of convergence clubs.
In our sub-samples, significant beta convergence cannot be found, but the growth rates are country-specific (initial values remain insignificant in the presence of – significant – country dummies) and agglomeration externalities can be proved. These first results open the path towards models considering spatial dependence and heterogeneity.

Mitsuhiko Kataoka (p)

Economic growth is inevitably uneven across subnational regions. Some regions—usually those with better connections to the international economy, with the presence of rich mining enclaves, with good market-oriented governance, with urban agglomeration effects — experienced the favorable economic growth. In particular, the large East Asian economies such as China, Indonesia, Malaysia, Thailand, and Vietnam have been facing these issues.
On account of nation’s size, insular geography, the world’s fourth most population size, and its rich endowment of natural resources, Indonesia consists of the widely different socioeconomic sub-national regions: the nation’s largest urban agglomeration province (Jakarta), the resource-rich provinces (Ache, Riau, East Kalimantan, and Papua), the internationally well-known tourist destinations (Bali and Yogyakarta), the emerging manufacturing cluster provinces (West and Central Java), and the labor-intensive agricultural provinces (the rest of provinces). Given extraordinary diversities, the nation is beset by a serious resource imbalance, uneven economic growth, and income inequality among provinces. To address this issue, the government has implemented various policies; however, outcomes are still far below the target level.
In the neoclassical economic framework, economic growth in a region is determined by change in two factors: production factor endowment and total factor productivity. We measure the productivity change over time in Indonesia’s pre-and post-crisis provincial economies, by employing the data envelopment analysis (DEA) based Malmquist productivity index (MP). It can be further decomposed into two components: catch-up index (relative efficiency change) and frontier shift index (the technical change).
Using the annual observations of 26 contiguous provincial GDP and factor inputs (labour, physical, and human capital) for 1990–2010, we found that Indonesia experienced favorable relative efficiency improvement and stagnant technical progress on provincial average. We also found the convergence in the relative efficiency that the less (more) relative efficient province in the initial study period has improved more (less) for the period.
However, several innovative provinces contributed to the technological progress at the aggregate provincial level for most periods, such as Jakarta and West Java. Some provinces keeping relative efficient in the input-output operation, for example, East Kalimantan, failed to contribute the technological progress at the national level.