Stylianos Sakkas (p)

Using an adjusted and extended version of the European Commission’s – JRC (Seville site) spatial Dynamic General Equilibrium model - RHOMOLO-v3, we analyse the impact of: (a) A balanced budget fiscal expansion where we distinguish between current/capital government spending and we differentiate between full fiscal regional autonomy and centralized balanced budget (b) We further study the impact of a reduction in debt-to-gdp ratio at regional level where we hypothesize a situation in which the fiscal authorities adjust their policies as much as needed so as to end up with lower debt.
Our simulation experiments focus on the Italian Economy. Italy has already some degree of devolved power to regions while tax-varying power is currently used for unproductive public consumption. Moreover Italy is characterized by high debt and low growth. Given Italy’s current fiscal stance some sort of fiscal consolidation is likely to be undertaken. In addition to this there exist significant regional disparities North-Centre vs Mezzogiorno.
Regarding public debt consolidation we, adopt a rule-like approach to policy. We assume that fiscal policy is conducted via simple feedback policy rules (Schmitt-Grohe and Uribe (2007), Coenen et al (2008), Philippopoulos et al. (2017), Sakkas and Varthalitis (2018)). Government consumption is allowed to respond to the inherited public debt-to-GDP ratio as deviations from policy targets. Our simulation results are driven by ad-hoc choices in the feedback policy coefficients across the policy rules.
While the effects, either of expansion in productive capital expenditure such as public investment (e.g Aschauer 1989, Fisher and Turnovsky 1998, Lecca et al., 2010, Alonso et al., 2009; Linnemann and Schabert, 2004) or fiscal consolidations have been extensively investigated in the macroeconomics literature at the country level (Forni et al. (2010), Almeida et al. (2013), Bi et al. (2013), Erceg and Linde (2013), Economides et al. (2017), Sakkas and Varthalitis (2018)) the regional responses of fiscal policy have not yet been thoroughly analyzed. Instead, in our study, using as a vehicle of analysis our dynamic spatial model, we show that significant asymmetric responses may arise with regard to the effects of fiscal policy and its regional dissemination.
Our study shows that while Cohesion Policy’s target is to promote and support the overall harmonious development of its Member States and regions, especially in the post-crisis period, this can be hindered by several national policies, such as fiscal policy for the sake of fiscal sustainability or by the level of fiscal autonomy.

Jaime Bonet (p), Gerson Javier Perez

Local governments face the financial constraints imposed by the scarce resources in the economy. This fact leaves them the challenge of looking for the best way to get a steady balance between a consistent revenue flows and meeting their commitments (Jacob and Hendrick, 2013). The literature has come up with the concept of fiscal health to refer to the situation under which governments are capable of balancing revenue streams and their financial obligations (Helpap, 2016).
The concept of fiscal health has been evolving from the simplistic measure of how revenues exceed spending obligations (Berry, 1994; Badu and Li, 1994; Bird, 2015). For this reason, in part due to worldwide crises affecting national and subnational finances, the concept is being much harder to define, to understand and to measure. For example, it is being recognized that fiscal health does not only have to do with the balance between revenue streams and spending commitments, but also with cash, budgetary, long-run solvency, and many other factors affecting governments and residents’ social and the economic reality (Groves et al., 2003).
With the purpose of contributing to the discussion on fiscal health in a developing country, this paper computes and analyzes 15 indicators for the main 23 municipalities in the country. This document follows the approach by Slack (2017) that, to the best of our knowledge, is for the first time implemented in Colombia. The methodology covers and takes into account the multiple methods and measures developed so far, and end up with six sets of indicators: profile, external, financial, tax and revenue, debt, and infrastructure.
Results make evident the extensive heterogeneity among Colombian cities, even those with similar characteristics. In addition, the process of making fiscal health diagnoses is extremely complex and is more effectively implemented in a multidimensional set up. In terms of fiscal health, for the 23 cities analyzed, results show that there are no deep or generalized problems with public finances of subnational governments. However, there seems to be regional heterogeneities where the two coastal lagged behind regions, Caribbean and Pacific, face longer-term and more structural problems, in particular with tax base and their capacity to get tax and non-tax revenues. On the other hand, richer and more able regions, Central and Eastern, deal with short-term restrictions such as those related to liquidity and cash flow.

Josip Viskovic (p), Maja Herman

Since seventies of the 20th century the process of decentralization has spread the world, and today more than 95% of the democratic countries are decentralized. According to World Bank decentralization may appear in the following forms: political, administrative, fiscal and market decentralization. The accent of this paper is on the fiscal and political decentralization and their effect on the government quality. Namely, political and fiscal decentralization should result in well-organized and more efficient government. There are numerous papers that have mostly confirmed the positive impact of fiscal decentralization on government quality, while there have been less papers and with vague results on the impact of political decentralization. The idea of this paper is to study the impact of fiscal and political decentralization on the government quality in seventeen Central and Eastern European countries for period 1998 – 2012. Moreover by forming an interaction variable between political and fiscal decentralization, the impact of abovementioned decentralization on the government quality for these countries is further explored. Hypotheses that fiscal decentralization positively influences the government quality, but that political decentralization reduces its positive impact will be tested by multiple linear regression analysis. Fiscal decentralization will be measured by the budget indicators obtained from the International Monetary Fund Database Government Finance Statistics (GFS), while political decentralization will be measured by indicator Authority taken from the World Bank Database of Political Institutions. Control of corruption, rule of law, regulatory quality and government effectiveness will be used as government quality indicators and are available from World Bank Governance Indicators. Adequate control variables such as GDP per capita and government size will be used as well.