Public Sector Economics - submission site

Do increases in public sector wages affect inflation?

2024-12-16T12:13:41+01:00

After the pressures from rising energy and food prices subsided, wage increases became the primary risk to inflation. Given concerns that substantial wage growth in the public sector during Croatia’s 2024 election year could create additional inflationary pressures, this paper estimates the potential impact of public sector wage growth on overall inflation using BVAR models. The analysis finds that while the direct impact of 0.15 pp is negligible, there may be a stronger indirect effect. Depending on the assumed (side) effects of public sector wage growth on aggregate demand and the extent of wage spillover to the private sector, the indirect effect of public sector wage growth on inflation could range from 0.34 to 0.88 percentage points. However, considering the double-digit wage growth, it can be concluded that the estimated total contribution of 0.5 to 1 basis points from public sector wage growth is relatively modest.

Pressure on interest rates on deposits in Croatia: government bonds or European Central Bank?

2024-11-20T11:11:48+01:00

The paper analyses the importance of government bonds as the key instrument on the capital market and their effect on interest rates on deposits in Croatia. February 2023 saw the first government bonds issued in Croatia, which provided citizens with safe investment opportunities, especially following low interest rates periods across Europe that continued several months into Croatia’s accession to the euro area. The authors define two hypotheses regarding the effect of government bonds and the European Central Bank (ECB) on interest rates, trying to determine whose relative effect was greater of the two. Combining principal component analysis and regression analysis, the authors determine that government bonds have a limited effect on interest rates, whereas ECB’s effect is much more significant. The results suggest a complex dynamic between fiscal and monetary policy, highlighting proactive government measures for stimulating investments and development of the Croatian capital market.

Bank profitability in the euro area in times of high inflation

2024-05-25T17:54:12+02:00

Following the shift in the European Central Bank's (ECB) monetary policy in mid2022, the interest income of euro area banks rose markedly, boosting their overall profitability. This paper shows that the positive impact of higher interest rates on bank profitability was amplified by the existence of abundant excess liquidity. In particular, since euro area banks held large stocks of excess liquidity, they were able to earn substantial risk-free interest income by simply putting their liquidity into the ECB’s deposit facility. In addition, due to the prolonged period of monetary expansion and zero interest rates on time deposits, the share of overnight deposits in total bank liabilities had increased significantly by the time the ECB tightened its policy. Since overnight deposits typically respond slowly to policy rate changes, such a structure of funding enabled euro area banks to enjoy comfortable net interest margins for some time.

Intragenerational occupational mobility: the effect of crisis and overeducation on career mobility in a segmented labour market

2024-07-15T10:43:40+02:00

This paper explores occupational and employment mobility over the previous decade in Greece and contributes to a better understanding of the consequences of the sovereign debt crisis. Our findings suggest that downward mobility was the common trend in intra-generational occupational mobility during the first period of the crisis. Significant changes occurred between 2011-2015. The recovery is apparent during the third bailout program with higher upward occupational and employment movements. However, polarization in the middle-paid professions was noticed. Additionally, this paper highlights the role of education in career mobility and the problem of overeducation. The empirical results reveal that tertiary graduates were more likely to move downward during the first period of the crisis even though overeducated workers had more possibilities to experience upward mobility. Overeducation in Greece seems to be the result of the increasing number of tertiary graduates, low proportion of high-skilled job positions and high levels of unemployment.

Fiscal policy burden accruing from public debt accumulation: theoretical effect on growth and empirical evidence

2024-07-22T12:48:45+02:00

The study investigates how fiscal policy burden accruing from public debt affects economic growth in Sub-Saharan African countries over the period 1990-2022. It employs the generalized method of moments and auto-regressive distributed lag methodologies, which reveal that fiscal policy burden significantly impaired economic growth during the period. The results, therefore, support the view that the growth benefits of fiscal policy are constrained by large accumulations of public debt, validating the concern raised by multilateral institutions about the economic consequences of large and excessive debt accumulation. Furthermore, the results corroborate the Classical theory prediction of stagnation in long-run growth when existing public debt is too large for fiscal policy to accommodate. Therefore, interventions are required to contain the fiscal policy burden, in order to foster economic growth. Such policy interventions should aim at reducing the level of public debt and increasing the fiscal revenue from non-tax sources.

Do fiscal deficits cause inflation? Evidence from Suriname

2024-05-13T11:01:41+02:00

This study examines the impact of the fiscal balance on headline inflation in Suriname. Historically, Suriname coped with multiple episodes of high inflation. A structural vector autoregression (SVAR) framework with annual data from 1961 to 2022 is used to assess the transmission of fiscal shocks to consumer prices. In addition, the analysis takes into account commodity prices, money supply, the exchange rate, and output growth. The empirical analysis reveals that exchange-rate shocks are the primary driver of inflation. Energy commodity price shocks also induce price pressures, in contrast to non-energy commodity price shocks. Fiscal shocks do not affect inflation directly. Nonetheless, there is evidence that these shocks do affect the exchange rate substantively. The results of this study emphasize the importance of exchange-rate stability, while fiscal discipline can alleviate exchange-rate and inflationary pressures.

A Taxing Journey – How Civic Actors Influence Tax Policy

2024-12-04T00:05:06+01:00

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