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  • PFMX M02 Annotated

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    This document discusses public financial management (PFM) and fiscal policy. It defines fiscal policy as the use of government spending and revenue to influence the economy. Fiscal policy aims to achieve the three functions of government identified by Musgrave: allocation, distribution, and stabilization. The document outlines tools of countercyclical fiscal policy and discusses the need for fiscal consolidation in some countries following the 2008 global financial crisis. It also defines fiscal responsibility and its goals of sustainable budgets, allocative efficiency, and intergenerational equity.

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    This document discusses public financial management (PFM) and fiscal policy. It defines fiscal policy as the use of government spending and revenue to influence the economy. Fiscal policy aims to achieve the three functions of government identified by Musgrave: allocation, distribution, and stabilization. The document outlines tools of countercyclical fiscal policy and discusses the need for fiscal consolidation in some countries following the 2008 global financial crisis. It also defines fiscal responsibility and its goals of sustainable budgets, allocative efficiency, and intergenerational equity.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    7 views53 pages

    PFMX M02 Annotated

    Uploaded by

    Gifty Baidoo
    This document discusses public financial management (PFM) and fiscal policy. It defines fiscal policy as the use of government spending and revenue to influence the economy. Fiscal policy aims to achieve the three functions of government identified by Musgrave: allocation, distribution, and stabilization. The document outlines tools of countercyclical fiscal policy and discusses the need for fiscal consolidation in some countries following the 2008 global financial crisis. It also defines fiscal responsibility and its goals of sustainable budgets, allocative efficiency, and intergenerational equity.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 53

    Public Financial Management (PFMx)

    Module 2

    PFM and Fiscal Policy

    This training material is the property of the International Monetary Fund (IMF) and is intended for use in IMF Fiscal Affairs Department (FAD) courses.
    Any reuse requires the permission of the IMF and FAD.
    Public Financial Management (PFM) and Fiscal Policy

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    PFM Makes Fiscal Policy Work

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    Defining Fiscal Policy

    Policymakers have two main levers of influence…

    Fiscal Policy Monetary Policy

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    … the use of government spending and revenue to


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    The Influence of Fiscal Policy

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    Musgrave’s Functions of Government

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    Three Functions of Fiscal Policy

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    Fiscal Stimulus – 1

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    Fiscal Stimulus – 2

    Average public spending ratio in advanced economies


    (General government expenditure in percent of GDP)
    46

    44

    42
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    36 Crisis

    34
    2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
    Source: IMF, World Economic Outlook.
    Countercyclical Fiscal Policy

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    Countercyclical Fiscal Policy Instruments

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    The Need for Fiscal Consolidation

    Ratios for advanced economies:


    (For general government in percent of GDP)

    Budget balance Gross Debt


    0 110 2008
    2008
    Global Global
    -2 Financial 100 Financial
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    Crisis Crisis
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    -6 80
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    -8 70
    -10 60
    2005 2008 2011 2014 2005 2008 2011 2014
    Fiscal Consolidation Measures
    Source: IMF, World Economic Outlook.
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    Defining Fiscal Responsibility

    Fiscal Responsibility is…


    … an agreed set of policies, processes, or arrangements to
    improve fiscal outcomes.
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    Benefits of Fiscal Responsibility

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    Modern Fiscal Policy Objective 1

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    Limits to Fiscal Responsibility

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    Three Functions of Fiscal Policy

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    Modern Fiscal Policy Objective 2

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    Fiscal Policy Objectives in Summary

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    Fiscal Policy Objectives

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    Fiscal Policy Objective 1

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    Fiscal Policy Objective 2

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    Role of PFM Instruments

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    The Budget Cycle

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    Fiscal Planning: General Process

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    Key PFM Instruments

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    Fiscal Responsibility Frameworks

    Set guidelines and rules


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    transparency and
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    Fiscal Responsibility Goals

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    Defining Fiscal Rules

    A (numerical) fiscal rule can be defined as:

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    International Evidence

    Number of Countries with Different Fiscal Rules


    80
    70 Debt rule
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    10
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    1985 1990 1995 2000 2005 2010 2015
    Source: IMF Fiscal Rules Dataset.
    Designing Effective Rules

    Design Principles:
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    4. Operational Guidance to the left.

    5. Resilience

    6. Monitoring
    Challenges

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    Challenges – 1

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    Challenges – 4

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    PFM Requirements

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    Public Financial Management (PFM) and Fiscal Policy

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    Fiscal Policy Objectives

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