Evolution of Pension System Financial Models for Sustainable Economic Growth

Sustainable accumulation of pension rights and increasing of income protection for individuals are central problems for any pension system. Public pension provision in the world practice usually has an earnings-related basis. At least one third of OECD countries has basic minimal pension provision, which depends on the socio-economic policy and financial health of the budgetary system. The development of financial and investment models of pension systems since the creation of the first prototype in Germany has been driven by changes in the gender and age structure of the population, globalization and rapid development of technology. The recession of 2008 and the COVID-19 crisis of 2020 highlighted the vulnerabilities of the global financial system and the risks to the financial stability of pension systems. Pension finances deteriorated during these crises due to lost contributions on wages, which have been mainly covered by state budgets. Automatic adjustment mechanisms in pensions are crucial to deal with the problem ageing. The aim of the study is to analyze the evolutionary vector of development of financial and investment models of pension provision, update and analyze risks for their future development, and justify ways to overcome these risks in the long term. The paper concludes that to adapt pension models to the current challenges of the global economy, it is necessary to improve the quality of public services in the field of social security and optimize the costs of their financing via increasing the quality of the public financial management. It is also necessary to use advantages of technological progress in order to minimize the threats of technological growth to pension systems caused by the industrial Revolution 4.0. This direction will require adaptation, effective adjustment of the financial mechanisms of pension systems, and even qualitative changes in the financing models of the pension system in the long term. © 2023, The Author(s), under exclusive license to Springer Nature Switzerland AG.

The Fiscal Impact of Quantitative Easing

The Bank of Canada's purchases of securities under quantitative easing are tantamount to an exchange of a fixed interest rate expense for a floating rate paid on certain liabilities of the Bank of Canada. They also imply that the Government of Canada remains liable for potential losses on these assets. This significantly increases the proportion of federal government debt financed in the money market, exposing the Government of Canada to higher interest rate risk than indicated in the budget documents and has resulted in significant losses to date. The exit from quantitative easing in an anti-inflationary environment poses significant challenges for monetary policy and points to a difficult fiscal situation. © Canadian Public Policy/Analyse de politiques, December/décembre 2022.

Facing or retreating? Evaluating the impact of fiscal pressure and the selection preference of tax efforts among Chinese local government

As China's economy enters a new era, fiscal pressure is growing rapidly. How will local governments determine their tax efforts under pressure? Facing or retreating? This paper selects macro data of 30 provincial administrative regions from 2000 to 2018, using instrumental variable method and threshold regression model, while, putting fiscal pressure, land-transferring fees, local government debt and transfer payments into the same regression equation to test the causal relationship between fiscal pressure and local tax efforts. We found that local governments will choose to raise tax efforts under fiscal pressure. Moreover, the heterogeneity analyses prove that eastern local governments prefer higher tax efforts. When the growth rate of tax and economy is low, local governments have less motivation to strengthen tax collection and administration. Threshold regression tests show that transfer payments have a moderating effect on local tax efforts, and transfer payments has a threshold effect. When the transfer payments are under the minimum threshold value or above the maximum threshold value, it may lead to inaction of local governments, who do not try their best to raise tax efforts. These findings are valuable in policy making for the construction of sustainable public finance.

Public Debt and Economic Growth in India: The New Evidence

The study gives new evidence on the effects of public debt on economic growth in India with key macroeconomic indicators from 1980 to 2019. In the past decade, and after the COVID-19 pandemic, there is a substantial rise in public debt, which reached 90% of the GDP in April 2021. Therefore, it is imperative to study the impact of different public debt sources on the Indian economy to help policymakers frame informed debt management policies. The long-run equilibrium relationship and cointegrating coefficients are calculated using Johansen cointegration and fully modified ordinary least square techniques. Toda and Yamamoto's (1995) Granger causality test is used as a short-run diagnostic test for the long-run equilibrium relationship. The study's major findings suggest that domestic debt, total factor productivity (TFP) and exports are the major determinants of economic development in the long run. In contrast, economic prosperity determines the growth of external debt, debt service payments and TFP in the short run. It is recommended that the government should control and channel public debt productively for favourable growth effects.

Government debt accumulation and non-performing loans: An ARDL bounds testing approach

Following the financial and debt crises in the euro area and the global COVID pandemic, governments supported their economies by increasing borrowing and accumulating debt with ambiguous long-run effects on non-performing loans (NPLs). We empirically investigate the determinants of NPLs using quarterly (2003Q1-2020Q2) aggregate data for Greece and applying the autoregressive distributed lag (ARDL) bounds testing approach. We offer new policy-making relevant evidence by showing that government debt has a significant and positive long-term impact on NPLs irrespective of possible short-term dynamics that appear to provide a temporary relief. Fiscal balance, on the contrary, exerts a negative long-term effect justifying the quest for surpluses post-COVID.

Local Government Debt, Financial Circle, and Sustainable Economic Development

Local government debt is the biggest “gray rhino” of China’s economy and one of the most significant factors affecting the sustainability of economic growth. We use the macroeconomic data of China’s real economy development level and local government debt from 2000 to 2020 to investigate the impact of local government debt on the real economy using the spatial Durbin model, focusing on the impact of the local government debt scale on the development of the real economy in jurisdictions and non-jurisdictions and the intermediation effect of finance under the geospatial correlation characteristics of economic development. The results show that the spatial correlation of the real economy between jurisdictions prevails and the correlation deepens over time. The scale of local government debt in China has exceeded a reasonable threshold, and the crowding-out effect of debt expansion on the real economy is obvious and not limited by jurisdictions, with significant spatial spillover effects. Financial marketization can effectively mitigate the crowding-out effect of local government debt on the real economy. These findings provide useful references for mapping the correlated development characteristics of local government debt and the real economy in China, effectively preventing local government debt risks and high leverage of the real economy and financial systemic risks, and providing effective insights for other countries to resolve government debt problems, prevent crises, and promote local economic development.

Are Policy Analogies Persuasive? The Household Budget Analogy and Public Support for Austerity

Public opinion on complex policy questions is shaped by the ways in which elites simplify the issues. Given the prevalence of metaphor and analogy as tools for cognitive problem solving, the deployment of analogies is often proposed as a tool for this kind of influence. For instance, a prominent explanation for the acceptance of austerity is that voters understand government deficits through an analogy to household borrowing. Indeed, there are theoretical reasons to think the household finance analogy represents a most likely case for the causal influence of analogical reasoning on policy preferences. This article examines this best-case scenario using original survey data from the United Kingdom. It reports observational and experimental analyses that find no evidence of causation running from the household analogy to preferences over the government budget. Rather, endorsement of the analogy is invoked ex post to justify support for fiscal consolidation.

Ambivalent Change in CDS Spreads in 11 Euro Area Countries

One of the macroeconomic consequences of the COVID-19 epidemic is that the global economy has seen a robust increase in the countries` gross external debt and the sovereign public debt that is part of it. Nor have the eurozone Member States escaped this effect. The increase in gross external debt and sovereign government debt also means that it has become theoretically more risky for investors to buy debt securities (typically bonds). Theoretically, however, it follows that as a result of the increase in risks in the country, CDS spreads had to rise as well. The study uses a correlation calculation to show that the development of the price of CDSs is more closely correlated with gross government debt than with gross external debt. Using hierarchical cluster analysis, the study groups the countries of the Eurozone. The basis for clustering is the close relationship between a countrys gross government debt and its CDS spread over the period under review A relevant conclusion of the study is that the increase in gross government debt was not followed by an increase in CDS spreads because the financial source of the increase in government debt was different from previous years.

Is the Italian government debt sustainable? Scenarios after the Covid-19 shock

The sustainability of the Italian government debt has been under close scrutiny since the launch of the Euro Area, and even more so after the Global Financial Crisis. The Covid-19 crisis in 2020 has depressed the Italian economy further and negatively affected the government budget. Despite the rebound in 2021, the state of the economy and government debt in Italy remain precarious. Building on Pasinetti's work, this paper examines the sustainability of the Italian government debt through a medium-scale, stock-flow consistent, structural macroeconometric model. The model has been coded and calibrated using the R package Bimets developed by the Bank of Italy. Our findings show that the Italian government debt is unlikely to enter a sustainable trajectory in the next few years. While the Next Generation EU and the other fiscal and monetary measures are helping the Italian economy to recover, in the coming years, a greater effort on the part of the European authorities-including an intervention of the ECB in controlling the yield curve-seems necessary to stabilize the debt to GDP ratio in Italy.

The Macroeconomic Impact of Government Debt: An Empirical Analysis of Thailand

The issue of rising public debt is an important topic of increased focal point in the developing world. Especially, since the COVID-19 outbreak, governments in many countries create debts to relieve the effects of the pandemic. Thailand is no exception. The public debt is estimated at 58.60 per cent of the GDP in 2021. This raises the concern on the potential macroeconomic impact of public debt, especially the effect on economic growth. The connection between public debt and economic growth is ongoing controversial matter. The existing theories and empirical findings exhibit ambiguous effects of public debt on economic growth. Accordingly, this chapter scrutinizes the impact of government debt on economic growth of Thailand. An autoregressive distributed lag (ARDL) model is adopted for empirical estimations, based on endogenous growth theory, using quarterly data between 2002Q1 and 2019Q4. The Toda-Yamamoto approach on Granger causality test is employed to increase the robustness of the study. The findings indicate that a rise in total public debt, especially from domestic public debt, contributes to economic growth in general. However, the findings should be interpreted cautiously in terms of policy implications for the debt’s effect in COVID-19 context. This is because most of the money is used to support consumption rather than to contribute on productive sectors. © 2022, The Author(s), under exclusive license to Springer Nature Switzerland AG.

China's local government debt risk assessment and countermeasures under the influence of COVID-19.

Under the influence of COVID-19, the global economic and social development is facing great challenges. With the increase of government financial pressure and the decrease of debt paying ability, the problem of debt risk of local governments in China is attracting wide attention. In order to measure the level of China's local government debt risk under the influence of COVID-19, this paper takes China's Sichuan Province as an example, collects the core indicators data of measuring local government debt risk in 2017-2020 years, and uses AHP-TOPSIS method to make a comprehensive analysis of the local government debt risk situation in different periods before and after COVID-19. It is found that the local government debt risk in Sichuan Province is generally controllable. However, influenced by COVID-19, in 2020, the overall level of local government debt risk in Sichuan province expanded by 22.1% compared with 2019, this is mainly due to the further expansion of debt scale and slower economic growth. This paper suggests that the Chinese government should speed up the construction of comprehensive early warning and supervision system of local government debt risk, and prevent and resolve the debt risk of local government in advance.

Who spends more to combat COVID-19 social risks and why?

COVID-19 has gone beyond a public health crisis and poses a serious threat to people's livelihoods. In response to the growing employment and income crisis, most OECD countries have introduced various policies and programs to alleviate rapidly rising social risks and stabilise people's livelihoods. However, these measures vary, with some governments spending only 1% of GDP in 2020, while others spent more than 10%. We conducted a multiple regression analysis to examine factors associated with the level of additional social spending in 31 OECD countries. The results indicate that lower generosity of unemployment benefits was associated with additional social policy spending. However, contrary to the hypothesis, higher additional spending was found among countries with higher levels of government debt. We ended with policy recommendations.

Impact of China’s Provincial Government Debt on Economic Growth and Sustainable Development

Macroeconomic stability is the core concept of sustainable development. However, the coronavirus disease (COVID-19) pandemic has caused government debt problems worldwide. In this context, it is of practical significance to study the impact of government debt on economic growth and fluctuations. Based on panel data of 30 provinces in China from 2012 to 2019, we used the Mann–Kendall method and Kernel Density estimation to analyze the temporal and spatial evolution of China’s provincial government debt ratio and adopted a panel model and HP filtering method to study the impact of provincial government debt on economic growth and fluctuation. Our findings indicate that, during the sample period, China’s provincial government debt promoted economic growth and the regression coefficient (0.024) was significant. From different regional perspectives, the promotion effect of the central region (0.027) is higher than that of the eastern (0.020) and western regions (0.023). There is a nonlinear relationship between China’s provincial government debt and economic growth, showing an inverted “U-shaped” curve. Fluctuations in government debt aggravate economic volatility, with a coefficient of 0.009;tax burden fluctuation and population growth rate aggravate economic changes. In contrast, the optimization of the province’s industrial structure and the improvement of the opening level of provinces slow down economic fluctuations. © 2022 by the authors. Licensee MDPI, Basel, Switzerland.

The Dynamic Relationship between China’s Economic Cycle, Government Debt, and Economic Policy

Economic growth is an integral part of the Sustainable Development Goals (SDGs), especially SDG 8. We combine 10 economic constraints and build a five-variable (structural vector autoregressive) SVAR model based on China’s time series data of 1978–2017. The empirical results show: (1) The Chinese government adopted different economic policies at different stages of reform and opening up;(2) From the impulse response results, China’s excessively high government debt ratio has begun to inhibit economic growth;(3) In terms of policy selection and coordination, the Chinese government mostly adopts a “discretion” adjustment strategy. In most cases, the fiscal and monetary policies were in the same direction, and the “double expansionary” and “double contractionary” policy coordination may become mainstream;(4) The results of variance decomposition showed that both fiscal and monetary policies can effectively regulate economic growth at the present stage, and the contribution rates of exogenous shocks to the prediction variance of economic growth rate were about 25%.

Long-Term Impact of Economic Downturn and Loneliness on Psychological Distress: Triple Crises of COVID-19 Pandemic.

BACKGROUND: The COVID-19 crisis poses global mental health and global economy challenges. However, there is a lack of longitudinal research investigating whether financial instability and social disruption may increase the risk of developing mental health problems over time that may potentially outlast the pandemic. METHODS: We conducted an online survey for members of the general population (n = 2703) in Germany during the twelve months spanning from April 2020 to March 2021. We investigated the development of COVID-19 related psychological distress, the number of unemployed people, federal government debt, income distribution, and loneliness over the time period. RESULTS: Over a period of twelve months, 53.6% of respondents in Germany reported experiencing psychological distress, varying from mild levels, 34.2%, to severe levels, 19.4%, of distress. High federal government debt, high incident COVID-19 cases, low incomes, and the prevalence of loneliness were found to be associated with increased long-term mental health problems. Psychological distress scores were most strongly increased in female and young respondents as well as those who reported fewer years of education, low income, and higher loneliness. CONCLUSIONS: Our study highlights factors that have a long-term impact on mental health amid the COVID-19 pandemic. We suggest that specific mental-health services could be offered to support high-risk groups experiencing financial fragility and loneliness. For purposes of safeguarding their mental health there is a need to monitor and track such risk factors in real time.

COVID-19, Seignorage, Quantitative Easing and the Fiscal-Monetary Nexus.

The huge fiscal expansions triggered by the corona crisis raised debt/GDP ratios to very high levels. This led some economists to reconsider the taboo on seignorage. Following a brief documentation of the crisis impact and aggregate demand policies responses the paper discusses views of academics and policymakers on seignorage. Optimal taxation considerations imply that the decision on allocating deficit financing between debt and seignorage falls within the realm of fiscal authorities-a fact that infringes on central bank (CB) autonomy. The paper explores ideas aimed at improving the tradeoff between those two principles. Implication of cross-country variations in the need to use seignorage is discussed. Comparison of the indirect contribution of quantitative easing (QE) to deficit financing with the direct contribution of seignorage implies that QE is a substitute to seignorage that preserves central bank dominance without much change in existing monetary institutions. Comparison of empirical evidence from the USA during the global financial crisis with the post-WWI German inflation supports the view that for countries experiencing deflationary pressure seignorage is more potent in moving inflation toward its target than QE. Given the current outlook temporary use of seignorage does not appear to involve a substantial risk of inflation.