№ 9/2018

Fìnansi Ukr. 2018 (9): 91–111

FINANCIAL AND ECONOMIC REGULATION

SHVETS Serhij ¹

¹SI “Institute for Economics and Forecasting of NAS of Ukraine”
OrcID ID : https://orcid.org/0000-0002-3102-9784

Application of the golden rule of fiscal regime: lessons for Ukraine

The article describes a well-known “golden rule” concept in its fiscal interpretation, which denotes expanding the public investment fund, using internal government borrowing instrument with a requirement to cover the current budget expenditures at the cost of the budget revenue. The starting conditions of golden rule implementation for the case of tightening up a debt burden in combination with a slack growth are justified, which is extremely important for Ukraine. The author outlines the issue of pursuing the pro-investment fiscal policy within the framework of the golden rule, which increased the fiscal multiplier effect through the expansion of the aggregate demand in a short-run and boosting crowding-in effect as a result of the expansion of the aggregate supply in a more distant perspective. For the present agenda of the Ukrainian economy development, which continues to balance within the negative range of GDP-gap, the introduction of the golden rule of public finance became more relevant to a modified version in practical terms, by going beyond a limit of deficit financing to cover current expenditures and imposing a threshold of internal public debt-to-GDP ratio. The econometric macro-model of fiscal-monetary interaction in Ukraine is elaborated. According to scenario modeling results, the rise of the internal public debt up to 20 billion UAH for extra amount finance of capital expenditures of the State Budget of Ukraine in 2018 has led to additional 1.9 pp of GDP growth in 2019, which effectively reduced the further pressure of debt burden on the economy. The given modeling results have shown the effectiveness of the golden rule implementation slowed down with the growing debt as well as an increasing load of inflation and exchange rate factors in response to the expansion of the money supply because of the seigniorage issue. The fiscal multiplier effect of the pro-investment fiscal policy is most effective considering the suggested measures were a matter of strategic projects with a high asset ratio, which keeps the current tendency of the aggregate supply stimulation for a longer perspective.

Keywords:economic growth, fiscal policy, golden rule of public finance, public investment, fiscal multiplier, econometric modeling

JEL: C22, C53, H54, O47

Shvets S. . Application of the golden rule of fiscal regime: lessons for Ukraine / S. Shvets // Фінанси України. - 2018. - № 9. - C. 91-111.

Article original in Ukrainian (pp. 91 - 111)

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