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High public debt is urging policy makers to consider strategies to rebuild buffers and preserve debt sustainability. We focus on discretionary fiscal consolidation, defined as an increase in the ratio of primary balance (the difference between government revenues and non-interest expenditures) to GDP not driven by business cycle considerations, and evaluate whether—and under which conditions—it is likely to be associated with a durable reduction in public debt to GDP ratios. Our findings, based on a large sample of advanced and emerging countries, indicate that, on average, discretionary fiscal consolidation has a minimal impact on debt ratios. However, discretionary consolidations implemented during economic upturns or in scenarios where they can “crowd in” private investment, are more likely to be associated with sustained reductions in debt ratios.
This paper analyzes inflation dynamics in 21 advanced and emerging market economies since 2020. We decompose inflation into core inflation as measured by the weighted median inflation rate, and headline shocks––deviations of headline inflation from core. Headline shocks occurred largely on account of energy price changes, although food price changes and indicators of supply chain problems also played a role. We explain the evolution of core inflation with two factors: the strength of macroeconomic conditions—measured by the unemployment gap, the output gap, and the ratio of job vacancies to unemployment—and the pass-through into core inflation from past headline shocks. We conclude that the international rise and fall of inflation since 2020 largely reflected the direct and pass-through effects of headline shocks. Macroeconomic conditions generally played a secondary role. In the United States, estimated price pressures from strong macroeconomic conditions had been greater than in other economies but have eased.
Does partisanship influence loan allocation through the Paycheck Protection Program (PPP)? We examine the 2020 Presidential campaign contributions by lenders’ employees as a measure of partisanship and leverage the staggered rollout of the PPP under both Trump and Biden administrations to address this question. We find that partisan misalignment increases bank lending, particularly to small and first-time PPP borrowers, and those in Republican areas. This is consistent with Republicanleaning banks viewing the PPP’s 2021 phase as a legacy policy of the prior administration. Using county-level weekly unemployment insurance data, we also show that partisan misalignment is associated with higher PPP payroll coverage for small businesses. Our findings shed new light on the partisan-alignment phenomenon in finance.
This paper exploits the unanticipated sequestration of federal budget accounts in March 2013 to examine how contractors adjusted lobbying activities in response to the sequester. The sequestration reduced the funds disbursed through procurement. Firms with limited exposure to the cuts reduced lobbying spending after the event, whereas firms with high exposure maintained, or even increased, lobbying expenses. More affected firms appear to have intensified lobbying efforts to distinguish themselves, and to improve their chances of procuring a larger share of the reduced pie. These effects are stronger for government-dependent sectors and sectors where competition is more intense.
We study E-commerce across 47 economies and 26 industries before, during, and after the COVID-19 pandemic using online transaction data from Mastercard. The online share of total credit card transactions surged during the pandemic, especially as governments made transfers to households in lockdown. As the fiscal support and mobility restrictions waned, online shares went back to pre-pandemic trends in almost all countries. We find little evidence of long-lasting structural changes in E-commerce spending patterns.
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