The government limited the budget deficit to an average of about l4 percent of gdp in the five years ending in efy l98889 by borrowing from local sources. Fiscal federalism in theory and practice teresa ter. In terms of macroeconomic policy 1991 witnessed a marked departure from the previous socialist system the derg regime. Fiscal policies and international financial markets alan c. However, the tendency for interest rates to rise in response to a fiscal expansion could be offset by an easing of monetary policy. Country financial accountability assessment ethiopia. This was the period where a shift from a controlled to market.
Performance and policy implications 99 theoretical and empirical researches in urban manag ement number 514 february 2010 resources from the central government and its agencies to subordinate units or. Monetary policy and inflation dynamics in ethiopia. The ultimate research objective centers on an empirical investigation of which policy tool has. To combat inflation and reduce the deficit, the government adopted a conservative fiscal management policy in the 1980s. The effect of monetary policy on the private sector. Fallacies of neoliberal macroeconomic policy prescriptions for developing nations. Mekonen tadesse editor, ethiopian economic associationeea, departments of economics of aau. Fiscal federalism in the ethiopian ethnicbased federal system by solomon negussie, 9789058501899, available at book depository with free delivery worldwide. Fiscal policy promotes growth through macro and structural tax and expenditure. Fiscal deficits and the monetary sector in ethiopia. Fiscal policy, stabilization, and growth publications inter. Within the governments mediumterm economic programme, fiscal policy stresses two main objectives. The detailed fiscal data is available to underpin the analysis. Accordingly, the effectiveness of monetary policy on regulating the money supply depends to a large extent on government fiscal deficit.
Cecchetti, s 2011 fiscal policy and its implications for monetary and financial stability. Ethiopian journal of economics african journals online. Furthermore, var granger causality test suggests the causation running from budget deficit to money supply. While balanced budget rules affect almost every category of fiscal policy, debt rules seem to allow for intertem poral shifts and thus only have a pronounced effect. International trade and investment, international finance and macroeconomics this paper examines the effects of fiscal policies in an open economy when international financial markets are well developed. Interest groups, through policy and institutions, do influence macroeconomic outcome so that it accords to their interest. Such analysis is important because the evolution of macroeconomic outcomes cannot be understood in a political vacuum. A country financial accountability assessment cfaa is a diagnostic tool designed to enhance knowledge of financial accountability arrangements in the public and private sectors in client countries, to be used by the govemment of the country concerned, and other donors. Even though there is a belief that monetary policy can influence private sector investment, research works have not yet been conducted on the dynamic impact of monetary policy on private investment in ethiopia. The effect of government expenditures, taxation, and debt on the aggregate economy is of immense importance, and therefore great con troversy, in economics. Fiscal policy with reference to underdeveloped countries.
Monetary policy and industrialization in an emerging open. It derives its nature and characteristics from constitutional provisions as well as end page 112 the state of economic development, the pattern of income and resource. Fiscal policy also called budgetary policy is a powerful instrument in the hands of the government to intervene in the economy. Its difference lies on openly adopting a marketoriented economic policy. The monetaryfiscal policy mix futures forex trading. The theory of fiscal federalism fiscal federalism refers to a process of distribution and redistribution of fiscal decisionmaking power across multilevel governments. The search for a descriptive rule is the case of ethiopia is of great interest. Section four entails the presentation of results and discussion of findings. The components of fiscal policy and investment were also treated in this section. The us central intelligence agency cia estimates that in 2002 ethiopias. As shown in table 1, domestic investment in ethiopia has increased rapidly since the. The world banks 2014 prescription for ethiopia as a current case1 asghedom gmichael, phd august, 2014 motivation it is a glitteringly presented report, full of colorful bar and line. The distributional impact of fiscal policy in south africa1 gabriela inchauste, nora lustig. One view is that the decentralization of spending responsibilities can entail substantial gains in terms of distributed equity and macroeconomic management.
These channels include the macroeconomic for example, through the influence of the budget deficit on. This study investigates econometrically, the relative effectiveness of monetary and fiscal policies, by focusing on the relative effectiveness of broad money supply and government fiscal deficits with respect to their influences on economic activity represented by the gross domestic product gdp. Fiscal policy is the use of government spending and taxation to influence the economy. The design of national fiscal frameworks and their budgetary impact. To argue that the ethiopian tax system developed within such a framework would be. The monetaryfiscal policy mix empirical analysis and theoretical implications alexander d. Besides, monetary policy is found to be more important in the dynamics of inflation compared to fiscal policy. Issues in the coordination of monetary and fiscal policy 7 strong tax incentives for industrial capital formation. On the one hand the national bank of ethiopia does try to follow announced target before 200607 the national bank was focused up on the growth of money supply and the nominal exchange rate. Variations in the inflation rate can have implications for the fiscal authoritys. The year 1992 marked a policy watershed in the ethiopian financial sector, as well as the countrys economic policy at large. Policy presumes a thoughtout and articulated framework for decisionmaking.
In fact, precisely this policy mix has been advocated by feldstein l980a and others and appears to have been put in place by the reagan administration. Zimbabwe has given fiscal policy the biggest role in economic stimulus given the multicurrency regime which has limited the role of monetary policy. Immediate activation of the treasury bill market for liquidity management and raising of interest rates is recommended for proactive. The relative effectiveness of monetary and fiscal policies. Increasing government spending tends to encourage economic activity either directly. Fiscal policy, public debt and monetary policy in emerging. Inflation as an economic growth phenomenon from theoretical and empirical perspective, determining the direction of causality between economic growth and inflation in the developing countries is very controversial e. The ethiopian economy is still largely on subsistence level, and in spite of some progress made, ethiopia has only taken the very first steps towards economic and social development.
Rothenberg one of the most remarkable features of the american economy is its strongly enforced separation of fiscal and monetary policymaking powers. The effectiveness of fiscal policy in stimulating economic activity. Hence this study investigates the role of fiscal policy on economic growth in sudan during the period 19962012. Fiscal federalism in the ethiopian ethnicbased federal system. This study decomposes government revenue and government expenditure into various broad categories and then estimates the impact of each of them on economic growth for ethiopia using 196061. W e find evidence that people should travel an average of 19km to access a bank branch o r atms. Ethiopias public finances are under great budgetary pressure, as years of war and poverty have taken a heavy toll on the countryside, population, and infrastructure. The effectiveness of fiscal and monetary stimulus in.
To order copies of macroeconomic policy and structural transformation of african economies by the economic commission for africa, please contact. Fiscal policies and international financial markets. Among the most important is the recognition that fiscal and monetary policies are linked through the government sectors budget constraint. Addis fortune, bank borrowing, csa, ethiopian television, fiscal policy, food inflation, halfyear report on government performance, headline inflation, meles zenawi, monetary policy, monthly inflation data, narrow tax base, national bank of ethiopia, parliament.
The role of fiscal policy in the longrun growth process has been central in macroeconomics especially since the appearance of endogenous growth models. The purpose of the paper is to examine the effectiveness of fiscal policy instruments in zimbabwe on economic growth as the major target variable in the period 19802010. Financial and fiscal policy of ethiopia by ethiopia. The appearance of the phrase fiscal policy in the title of the paper may also convey a false impression in another sense. An overview benedict clements, sanjeev gupta, and gabriela inchauste fiscal policy can foster growth and human development through a number of different channels. Fiscal policy in ethiopia ethiopian economic association. Section three focuses on the methodology of the study and model used.
This project seeks to evaluate the effectiveness of the cbns monetary policy by assessing the extent to which the monetary policies have impacted on the growth process of nigeria using the major objectives of monetary policy as yardstick. Monitory policy, external sector and financial system asmamawa. Rather, literatures are substantially deal with the determinants of private investment and the effectiveness of monetary policy in ethiopia separately. Barriers to financial inclusion in ethiopia % adults source. This paper explores how fiscal policy can affect medium to longterm growth. The distributional impact of fiscal policy in south africa. Project muse an economic analysis of fiscal federalism. Over the past few decades, a clear trend has emerged worldwide toward the devolution of spending and, to a lesser extent, revenueraising responsibilities to state and local levels of government. In the 30 days period immediately following the end of each fiscal year, every public body shall pay all invoices received before the end of that year for. Interest groups, through policy and using institutions, do influence macroeconomic outcome so that it accords to their interest. Critics of fiscal stimulus argue that government spending displaces private spending and reduces domestic competitiveness.
The course covers some of the basic elements of macroeconomic policy such as fiscal, monetary and exchange. The course macroeconomic policy is intended to introduce firstyear mamsc students to the fundamentals of macroeconomic policy making in general and in the context of developing countries in particular. Public finance and taxation in ethiopia pdf in a moment of dismissive hubris, the ethiopian tax system may be. Medium term expenditure and budgetary practices in ethiopia. Medium term expenditure and budgetary practices in ethiopia mohammed yimer department of civic and ethical studies, college of social sciences and humanities, arba minch university. Fiscal policy and longterm growth international monetary fund. Fallacies of neoliberal macroeconomic policy prescriptions. A second example is the foreign exchange rate which is strongly in. Fiscal imbalances in fdre contd vertical imbalance for example for instance, the revenue generated by the regions accounts for only a maximum of 9. Pdf ethiopias new financial sector and its regulation. Fiscal policy relates to a variety of measures which are broadly classified, as. Ethiopia public finance the ethiopian fiscal year begins 8 july, in the ethiopian month of hamle.