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Procedia Economics and Finance 3 (2012) 582 – 590
Emerging Markets Queries in Finance and Business
The fiscal block in the macroeconomic modelling Camelia B a
Centre for Financial and Monetary Research
a,
* Bucharest, t Romania
Abstract The study has as main obj b ective to assess (quantitatively as well as qualitati a vely) y the way in wh w ich the governmental f cal sectoral block could be positioned relatively to the oth fis t er sectoral blocks of the national economy, within a macroeconomic model. To this end, some logical criteria are introduced and, based on them ten sectoral blocks of the national economy m are identifi f ed and described. Then, all th t e economic fl f ows (in money expression) among the fiscal block and the oth t er nine sectoral blocks are identifi f ed and systematized, as inputs or outpu t ts. Finally, a double entrance matrix is elabo a rated in order to highligh g t all these economic fl f ows and to put the bases to elabo a rate, in fu f ture studies, even an inter-sectoral blocks balan a ce, in an a analogous way with the elabo a ration of th t e well-kno k wn w Leontief inter-branch balance.
© 2012 Published byElsevier Elsevier © 2012 The Authors. Published by Ltd.Ltd. Selection and/or peer-review under responsibility of the Queries Finance and Business local Queries organization. Selection Markets and peer review underinresponsibility of Emerging Markets in Finance and Business local organization.
Emerging
Keywords: macroeconomy, modelling,sectoral block, fi f scal block,balan a ce of the relations between the sectoral blocks.
1.
Introduction Macroeconomic models of behaviour description is based mainly on sectoral blocks from a perspective of economic flows (real and nominal) not directly related to national accounts, but rather economic markets. This makes the analyzes or predictions made on the basis of these models (either financial planning or behaviour) to be "valid" in terms of markets, but not to calibrate the national accounts or vice versa. The project intends therefore to achieve a synthesis between these two types of modelling, so both markets and national accounts to be taken into account when designing the model and its use. This article is only part of a project intended to
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2212-6716 © 2012 The Authors. Published by Elsevier Ltd. Selection and peer review under responsibility of Emerging Markets Queries in Finance and Business local organization. doi:10.1016/S2212-5671(12)00199-2
Camelia Băltăreţu / Procedia Economics and Finance 3 (2012) 582 – 590
achieve a synthesis between these two types of modeling. 2.
What is the sectoral block
The concept of sectoral block requires some considerations in order to distinguish it from other ssuch as those of economic sector , market, national account, branch, sub-branch, area of activity etc. The reason we consider that the use of this concept adds value to our research is the following: , rather, each of them is trying, from its perspective, to identify and/or determine some structural-functional homogeneities or irregularities of the economic activity; or, the purpose of our research is to determine a structure of the national economy which serves, primarily, to the development of a macroeconomic model . The concept of sectoral block will have to meet some characteristics which, although can be found in the mentioned neighbouring concepts, this is done in a disjunctive, not cumulative manner; The concept of sectoral block will have to cover completely the economic activity of any kind.Question is whether the system of the sectoral blocks will have to distinguish between the official and unofficial economy . We consider that it is not productive to have a distinct block of the unofficial economy (or just of the underground economy), because, in principle, unofficial economic activities (particularly underground economic activities) can take place in any imaginable sectoral block. To this end, the sectoral of qualitative and quantitative modelling ; The sectoral blocks will systematize, logically, the economic activities, which will allow, as we will see in the subsequent paragraphs, their structural and functional correlation with other categories of § ; this correlation is, otherwise, the tough core of the model to which this research aspires as finality; The concept of sectoral block will allow it, depending on the subsequent modelling or analytical necessities, to be considered some mind of black box, which will establish methodological conditions for conducting inCapitalising on the above considerations, we may now attempt to formulate an operational definition for the concept of sectoral block , from the perspective of our research interest. We will call sectoral block a methodological cut from the system of the national economy, having a reasonable level of homogeneity of the economic activities included in that cut, irrespective of the degree of heterogeneity between the sectoral blocks on the national economy. Therefore, methodologically we will produce some kind of sui-generis entropic dissipation, so that, at the possible price of a higher inter-sectoral heterogeneity, we may din obtain a maximal reduction of the intra-sectoral heterogeneity. 3.
Classification criteria for the sectoral blocks
The criteria for sectoral block classification, as they have been introduced and defined in the previous paragraph, should be the following (we also consider that they should act concomitantly to obtain the classes of sectoral blocks):
Including in the topological meaning of the word. In our opinion, the unofficial economy includes the two categories of economic activities, both of them unobserved from the point of view of the governmental inspector: a) informal economy; b) underground economy. § Mainly with the system of economic markets, and with the system of national accounts.
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Minimal level of internal heterogeneity (intra-sectoral block) of the economic activities; Type of economic activity (predominant, according to the previous criterion): real economic activity and nominal economic activity**; Affiliation/non-affiliation to the domestic (national) economic space; The public or private character of the economic activity. 4.
Sectoral blocks of the national economy (SBNE)
The national economy, in its whole, forms the internal sector (IS). The rest of the world will form the external sector (ES). At the interface between the internal sector and the external sector we will find the The internal sector consists, in turn, of the following sectoral blocks: (SB1) internal, private, profit non-financial block ( ), contents: a) economic agents (firms) with profit non-financial activity; b) own business economic agents with profit non-financial activity; c) households; (SB2) internal private profit financial block ( ): contents: a) private commercial banks; private profit non-banking financial institutions; (SB3) internal private non-profit block ( ): contents: a) civil societies non-profit organizations; b) political parties and organizations; c) other private non-profit organizations and administrations; (SB4) internal private final consumption block (households) ( ): contents households; (SB5) internal private state financial block ( ): contents: a) state commercial banks; b) other state financial non-banking institutions; (SB6) internal private state non-financial block ( ): contents: a) national companies; b) state companies with autonomous (public or private) administration; c) commercial societies with stat shares over 50%;§§ (SB7) fiscal/budgetary governmental block ( ): contents: a) central, regional, and local public administration; b) any governmental agencies; (SB8) monetary non-governmental block ( ): contents: central bank The external sector consists, in turn, of the following sectoral blocks:
**
should rather flow is defined as that particular monetary flow which appears as counterpart to a real flow, rstand the flow that may develop into demand for consumption (final or intermediary). The case in which the state has some participation in such structures will be dealt with concretely when statistical series are actually processed. The case in which the state has less than 100% participation in such structures will be dealt with concretely when statistical series are actually processed. §§ The case in which the state has less than 100% participation in such structures will be dealt with concretely when statistical series are actually processed.
Camelia Băltăreţu / Procedia Economics and Finance 3 (2012) 582 – 590
(SB9) current account balance ( ): contents: commercial (goods and services) transactions and flows of autonomous revenues with the rest of the world; *** (SB10) financial and capital balance (FC ): contents: non-autonomous capital transactions
5.
The economic flows associated to the governmental fiscal block
The fiscal block ( ) is an internal block, of the state, and it belongs to the internal sector of the national economy. It is the only one of the ten identified sectoral blocks which has no direct relations with the markets . Therefore, the economic flows associated to the fiscal block will be connected to the other nine sectoral blocks. The main characteristics of the generic economic flows towards and from the governmental fiscal sectoral block are as follows: a. The flows are not necessarily two-way: between SB7 and the other nine sectoral blocks, the flows can be both two-way and one-way; this means that a flow towards one way must not compulsory condition a flow towards the other direction (of course, this is not forbidden, either); b. The flows are not necessarily interconnected: even if there are two-way flows (the run of a flow towards one direction is causally conditioned by the run of a flow towards the opposite direction), it is not necessarily that the two flows are interconnected, meaning that one flow is the response to the other flow; c. The flows do not have the nature of transactions: by transaction (or market relation) we understand a two-way interconnected flow characterised by marginal equivalence. By marginal equivalence we understand the equality of the marginal values, in most cases with monetary expression, between those particular flows (for instance, the sale of one bread presumes the circulation of the bread towards one direction, accompanies by the circulation of the currency in reverse direction; the marginal values of the bread and of the currency are equal for the economic agents involved in this two-way and interconnected flow; d. The flows are necessarily expressed in currency. The Fig.1 shows, generically, the economic flows running between the governmental fiscal sectoral block and the other nine sectoral blocks of the national economy.
***
For the time being we will make no distinctions between the commercial and capital transactions done by the private sector and those done by the state; however, within the context of specific analyses, this distinction must be done (for instance, if we have to distinguish between the foreign debt and the public foreign debt). Regarding the possible objection that, for instance, this relation with the market is present say, in the public loans, we would like to argue that technically, there is an intermediary institution, the central bank: the Government (actually the Ministry of Public Finances) buys and sells state securities through the central bank. Rigorously, the term of direction is not quite proper here; rather the term of way should be used. We prefer, however, the term of direction in order to make connection to the notions of one-way (direction) or two-way (directions).
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Fig. 1. Generic economic flows from and towards the governmental fiscal block
We will now identify the economic flows running between each pair of sectoral blocks and which have the governmental fiscal sectoral block either as origin, or as destination. , where: BB signifies economic flows between sectoral blocks §§§, We will use the following notation:
: economic flows from the non-financial operative private internal block towards the 1. governmental fiscal internal sectoral block : tax on the profit; : tax on property****; : tax to be paid tax on the value added ; : customs taxes and excises; : contributions to the state social insurances to be paid by the employer; : contributions to the social health insurances to be paid by the employer; : contributions to the unemployment fund to be paid by the employer 2. : economic flows from the governmental fiscal internal sectoral block towards the non-financial operative private internal block : tax of the value added to be reimbursed; : subsidies§§§§, exempts, relieves from the payment of budgetary duties;
§§§
Because there may also be economic flows between economic markets (PP) or from sectoral blocks towards economic markets (BP) or from markets towards sectoral blocks (PB). **** For buildings, land, cars, etc. Being an indirect tax which removes the double record, this flow is directed towards BS7 if the value of the sales in BS1 is higher than the value of the purchases (therefore, when there is a tax to be paid), and it will be directed inversely in the opposite case (therefore, there is a tax to be reimbursed). Erroneously called tax on the value added (in Romania, the payment of a tax presumes the delivery of a service; therefore this is necessarily a two-way flow). §§§§ Including payments such as eligible state aid according to the acting European norms.
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: purchases of private goods and services (governmental purchases); : payments for works that have been done (public investments); : various transfers 3. : economic flows from the financial operative private internal block towards the governmental fiscal internal sectoral block : tax on the profit; : contributions to the state social insurances to be paid by the employer; : contributions to the social health insurances to be paid by the employer; : contributions to the unemployment fund to be paid by the employer 4. : economic flows from the governmental fiscal internal sectoral block towards the financial operative private internal block : coupons or discounts for state securities; : subsidies (related to the rate of the active interest); : state aid***** 5. : the non-operative private internal block : customs taxes and excises; : contributions to the state social insurances to be paid by the employer; : contributions to the social health insurances to be paid by the employer; : contributions to the unemployment fund to be paid by the employer 6. : economic flows from the governmental fiscal internal sectoral block towards the non-operative private internal block : subsidies ; : various transfers 7. : economic flows from the private internal block of the final consumption towards the governmental fiscal internal sectoral block : tax on private income ; : tax on the property§§§§§; : contributions to the state social insurances to be paid by the employee; : contributions to the social health insurances to be paid by the employee; : contributions to the unemployment fund to be paid by the employee 8. : economic flows from the governmental fiscal internal sectoral block towards the private internal block of the final consumption : coupons or discounts for state securities; : price compensation (subsidies on the customer side); : allocations, social benefits; : various indemnities; : pensions for state social insurances; : payments for medical care and for compensated medicines; : unemployment benefit
*****
See, for instance, the recent monetary injections of public money in the commercial banks affected by the international financial crisis 2007-2011 (fortunately, this was not the case of the banking system from Romania). For instance, to finance the parliamentary parties during election campaigns. For any type of leviable income (wage, pension of state social insurances, cashed dividends, cash from rents, cash from interests etc.). §§§§§ For buildings, lands, cars, etc.
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9. : economic flows from the private internal financial block of the state towards the governmental fiscal internal sectoral block : tax on the profit; : dividends; : contributions to the state social insurances to be paid by the employer; : contributions to the social health insurances to be paid by the employer; : contributions to the unemployment fund to be paid by the employer 10. : economic flows from the governmental fiscal internal sectoral block towards the private internal financial block of the state : increase of the social capital; : coupons or discounts for state securities 11. : economic flows from the private internal non-financial block of the state towards the governmental fiscal internal sectoral block : tax on the profit; : tax to be paid for the value added : contributions to the state social insurances to be paid by the employer; : contributions to the social health insurances to be paid by the employer; : contributions to the unemployment fund to be paid by the employer 12. : economic flows from the governmental fiscal internal sectoral block towards the private internal non-financial block of the state : subsidies for the activity of exploitation; : investments; : state aids; : various transfers 13. : economic flows from the non-governmental monetary internal sectoral block towards the governmental fiscal internal sectoral block : tax on the profit******; : passive interests for the account of the public treasury 14. : economic flows from the governmental fiscal internal sectoral block towards the nongovernmental monetary internal sectoral block : increase of the social capital 15. : economic flows from the current account balance external sectoral block towards the governmental fiscal internal sectoral block : taxes; : inward current transfers (credit) 16. : economic flows from the governmental fiscal internal sectoral block towards the current account balance external sectoral block : contributions to EU budget; : other outward current transfers (debt) 17. : economic flows from the capital balance external sectoral block towards the governmental fiscal internal sectoral block : foreign credits; : subsidies from the European structural and cohesion funds;
******
The taxation rate for the operational profit of the National Bank of Romania is 80%.
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: cashing from the loans granted to the rest of the world 18. : economic flows from the governmental fiscal internal sectoral block towards the capital balance external sectoral block : foreign public debt service; : public investments in the rest of the world; : payments on account of the state guarantees for the foreign commercial loans. So, a balance sectoral links between blocks (a double entrance matrix) is represented in Table 1., the origin and destination of economic flows refers only to the pairs formed by SB7 block and the nine sectoral blocks.
6. Conclusions Based on four logical criteria of classification, which should act together, we propose a general classification of sectoral blocks that can be associated to a national economy. Establishing sectoral blocks economic and / or institutional action must follow homogeneity criterion actions performed within that sectoral block. We proposed a structure of economic activity at national level sector consists of ten sectoral blocks. Then, we are identified and described all the economic flows (in money expression) among the fiscal block and
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the other nine sectoral blocks. The purpose of our future research is to build a model based behavioural macroeconomic interactions that occur between economic markets, sectoral blocks and national accounts. Finally these interactions will be quantified in the form of equations. References Agénor,R., 2005, Fiscal Policy and Endogenous Growth with Public Infrastructure,Centre for Growth and Business Cycle Research Discussion Paper Series 59, Economics, The Univeristy of Manchester; Hall, R.,Taylor,J.,1988, Macro-economics, Theory, Performance, and Policy, Stanford University,. W-W-Norton&Company-New YorkLondon; Friedman, M.,Heller, W.,1969, Monetary vs Fiscal Policy, New York University, W-W-Norton&Company-New York-London; Leonard, F.,1979, Macroeconomic theory -Static and Dynamic Analyses, Random House, New York Mishkin, F.S., , 2007, The Economics of Money, Banking and Financial Markets, eighth edition, Pearson Publishing House, Boston; Mohan, R., 2011,Growth with Financial Stability, Oxford University Press.
