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AbstractThe author believes that public borrowing, as against pay‐as‐you‐go, is legitimae under present circumstances.

The government of Sri Lanka has been disproportionately borrowing from the domestic banking and non-banking sectors to finance its budget deficit. These sectors also serve as funding sources for the country's private investors. The government's expansionary fiscal policy has increased its total income, but it may also raise interest rates and reduce private investment. This study estimates the crowding-out effect of public borrowing from domestic sources on private investment in Sri Lanka. Using time-series data from 1960-2014 sourced from the Central Bank of Sri Lanka and World Development Indicators, we develop an investment function with three independent variables, public borrowing, interest rate, and gross domestic product. Unit root tests and the autoregressive distributed lag and vector error correction models are also utilized. To test the long-run relationships among the variables, we conduct a bound test of co-integration, and the results show that there is long-run co-integration between the variables. Vector autoregressive models, variance decomposition analysis, the Granger causality test, and impulse response functions are used to analyse the results. The study provides evidence for the absence of a crowding-out effect in Sri Lanka as a result of public borrowing from domestic sources. This evidence has important implications of fiscal management in Sri Lanka. To avoid external indebtedness and unnecessary inflation due to debt financing, the government can rely on domestic sources without hurting private investment in the country.

Trabajo presentado a Iberometrics VIII: Eight Iberian Cliometrics Workshop. Organizado por el Institute of Advanced Research in Business and Economics (INARBE) de la Universidad Pública de Navarra, en colaboración con Glocred y expertos de instituciones de España y Portugal. Celebrado en la Upna el 20-21 de abril de 2017. ; This paper aims at providing quantitative and qualitative evidence of a crowding out effect due to war borrowing at the end of eighteenth-century Spain. In the second section, I examine the two key links in the crowding out argument. First, did the Spanish government's issuance of debt to finance warfare result in higher real interest rates? Second, did it cause a reduction of private investment? Annual data for long-term interest rates and for government borrowing allow examination of the first link in the crowding out argument. Then, using original annual data on the volume of long-term private credit that we collected from the mortgage registry of Madrid (Contaduría de Hipotecas de Madrid), we examine the second link of the argument. In the third section, this paper analyses structural changes in the long-term private capital market. We argue that the dramatic increase in public borrowing at the end of the eighteenth century to finance warfare crowded out ecclesiastical institutions and shut down large part of the private credit market for long-term annuities for the decades to come. We also show that the withdrawal of ecclesiastical institutions in the 1790s came along with the rise of private obligations.

It is now common for governments to set their budget strategy in a sustainable medium term framework. This practice can promote greater policy predictability & a more stable financial market environment, as well as increasing public accountability. But what form should medium-term targeting take? I will argue that the fiscal norms currently in vogue in Australia -- which effectively require zero net public borrowing over the medium term -- are too constraining & arbitrary & are not consistent with good governance. 2 Tables, 1 Figure. Adapted from the source document.

Despite a substantial body of evidence to the contrary, state and local fiscal policy variables loom to many political leaders as important determinants of economic growth. Using instrumental variables regression analysis reveals that prior population growth has a strong and significant influence on subsequent job growth. Differential factor costs, such as earnings per worker and electricity costs, have a statistically significant effect on employment growth. The results for total employment growth and for manufacturing employment growth suggest that factor costs are more important statistically for growth in the 1980s than they were during the 1970s. The degree of labor unionization has had mixed effects on economic growth. Fiscal variables, however, are not generally statistically significant except for the limited effects of per capita state non-property taxes on the change of total employment. There is no demonstrable long term effect of public expenditures on growth patterns over the 20 year period analyzed. Finally, per capita private purpose public bonds do not influence employment growth. The results reveal that, if anything, metropolitan areas with declining employment are more likely to use economic development bonds in unsuccessful attempts to stem employment decline.

This paper reassesses the importance of the League of Nations loans of the 1920s. These long-term loans were an essential part of the League's strategy to restore the productive basis of countries in Central and Eastern Europe. Whereas the literature is not conclusive as to the final result of this experience, we argue that the League Loans were successful because they accomplished the task for which they were conceived—namely, to allow countries in financial distress to access capital markets. This success rested on the sustained efforts of the League of Nations to gather support from creditor countries' governments and financial intermediaries, as well as its efforts to develop plans for economic reform for borrowing countries. We provide quantitative and qualitative evidence to show that the League provided market access in a difficult and hostile environment, and did so by building its own reputation as an actor that provided a credible commitment to economic and institutional reforms. Through the success of the placement of the initial issues, the League became capable of influencing borrowing costs, even if they continued to be predominately determined by the secondary market and remained high as a result of the risk involved. Much of the confusion in the literature is explained by the fact that the League lacked its own capital, which impeded its ability to act as a lender of last resort once the great depression hit Europe.

The study examines the peculiarities of the impact of public debt on the economic growth of states. The aim of the study was to analyze and identify the determinants of the impact of government borrowing on economic growth. The following research methods have been applied: analysis and synthesis of data and theoretical work, comparative analysis, statistical, correlation, cluster and discriminant analysis. According to the results of the survey, it is established that the growth of government borrowing can have both a negative and a positive effect on the economy, provided that it implements as the share of government debt to GDP, does not exceed 60% and is implemented in the form of financial investments (golden rule of public finance). The state's deficit is allowed provided that state assets grow; current income from investment fully covers current expenses. The results of clusterization allowed to allocate 3 groups of states: states that demonstrated the economic downturn; states characterized by slow economic growth; states that were characterized by high level of economic growth. The first group of states (the countries with economic downturn) observed a negative high level of government debt and GDP. The results showed the low level of domestic borrowing development in low and middle income countries, which in developed countries allows governments to finance the investment projects on the basis of local loans (municipal bonds, infrastructure bonds, mainly medium and long-term), increase the debt burden in terms of economic recession.

PurposeThe purpose of this paper is to show that state economic policies, in addition to state economic performance, impact state bond ratings.Design/methodology/approachUsing a sample of 39 states over the period 1998‐2008, regression analysis is employed to determine whether various measures of economic freedom contribute to state bond ratings.FindingsAfter controlling for common factors such as state per‐capita income, unemployment, the ratio of tax revenue to income, state debt as a percentage of government revenue, and public corruption, results suggest that greater economic freedom is associated with higher bond ratings. For example, a one standard deviation increase in Area 2 of the Economic Freedom of North America index (Takings and Taxation) would be associated with a 0.36 increase in Moody's bond rating for that state, which translates to approximately a $247 lower cost per million dollars of debt.Originality/valueThis study contributes to the empirical state bond rating literature by highlighting that states with greater economic freedom have higher bond ratings and, therefore, pay lower borrowing costs than their counterparts with lower economic freedom index scores.