Fiscal policy

This thesis examines how the various instruments of monetary and fiscal policy work in the presence of fixed and flexible exchange rates. Based on the pioneering work of Mundell and Fleming, the traditional view assigns fiscal policy as being highly suitable for a fixed exchange rate regime, while stimulative monetary policy is effective in raising output under floating exchange rates. Once the implicit assumptions of constant prices and wages are relaxed, the conclusions of the original model no longer hold. With the introduction of wage indexation as a mean to adjust nominal wages to changes in the price level, the initial results of policies of the Mundell-Fleming type are reversed. Finally, it was examined how the practical implications of policy actions of the United States and West Germany could be applied to the theoretical models.

This study was conducted to analyze the impact of the budget deficit on key macroeconomic variables in the seven major industrial countries (G-7): Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. Four models were developed to test the impact of the budget deficit on the variables of importance within the economies of the countries in question. The first model tested the relationship between the budget deficit and the short-term interest rate. The second explored the impact of the budget deficit on the long-term interest rate. The third model examined the impact of the budget deficit on the trade balance. The fourth and final model was specified to explain the relationship between the budget deficit and economic growth. The data utilized in this study covered the period from 1964 to 1993 and were gathered mainly from the international statistics of the International Monetary Fund. The data were standardized in the form of the percentage of the gross domestic product and the percentage change over the previous year in order to compile similar data across the seven countries. Multiple regression analysis as well as meta analysis were used to analyze the data. The multiple regression results indicated that the budget deficit leads to higher short-term interest rates in Japan and the United States. With respect to the long term-interest rate, the budget deficit led to an increase of this rate in France, Germany, and the United States. The budget deficit, however, appeared to worsen the trade balance in Canada. In Italy and the U.S., the trade balance improved with the budget deficit. With respect to the economic growth, the budget deficit is a significant variable of growth in France, Germany, and Italy. When the data for the seven countries were combined in meta analysis, the results showed that the budget deficit led to higher short-term interest rates in the seven countries. The budget deficit, however, did not manifest any impact on the long-term interest rates. The trade balance was worsened by the budget deficit and the economic growth improved in all the seven major industrial countries.

Most of the debate within public budgeting has centered on whether the incremental or non-incremental approach is best. In a theoretical context, little attention has been paid to the actual execution of an entity's budget. Specific theoretical objectives must be met for execution to take place: the objectives have been arranged in different ways, yet the basic requirements have remained constant. The dissertation compared these established theoretical objectives with actual budget execution; it concentrated on whether actual budgeting practice met the requirements of budget execution as depicted in normative theory. The research question asked to what extent is practice consistent with theory. The reality of budget practice was determined through survey responses. The questions were based on the procedures required for carrying out the theoretical objectives of execution. Surveys were sent to budget practitioners within the two-county area in southeast Florida. These individuals are responsible for public sector budgeting within their various entities on a state, county, and local level. The survey asked for the respondents perceptions of actual practice as it related to budget execution within their entity. The individual responses were evaluated and analyzed. Factor Analysis was used to determine the loading of eleven specific objectives. The patterns created by the factor loading were explored; it established how the objectives were viewed and whether there was a monolithic approach to execution. The results of the factor loading suggested that, in practice, budget objectives are not recognized as a cohesive process. Theory failed to match actual budget execution. Established procedures found in theory are only partially recognized by those who practice budgeting. A chi-square analysis of the survey results were examined to establish internal validity of the survey instrument and determine whether the responses were influenced by the independent variables. The results of the chi-square failed to note any influence on the responses.