Contents of issue 10/2011
Piotr Ciżkowicz, Andrzej Rzońca - The Fiscal Deficit and Its Impact on Economic Growth, summary
Paweł Gajewski - Public Finance Sustainability in European Union Countries, summary
Jacek Prokop - The Emergence and Stability of Heterogeneous Cartels, summary
Natalia Nehrebecka - Using Markov Chains to Predict Changes in the Structure of Polish Companies, summary
, article80 YEARS OF GOSPODARKA NARODOWA (1931-2011)
Anna Jarosz-Nojszewska - Aleksander Konstanty Ivánka (1904-1975), summary
Book Review: Andrzej Małkiewicz, Kryzys. Polityczne, ekologiczne i ekonomiczne uwarunkowania
(Crisis: Political, Ecological and Economic Determinants), Wydawnictwo Naukowe Scholar, Warsaw 2010, 220 pp. - reviewed by Marek Lubiński
Book Review: Ewa Aksman, Redystrybucja dochodów i jej wpływ na dobrobyt społeczny w Polsce w latach 1995-2007
(Income Redistribution and Its Impact on Social Prosperity in Poland from 1995 to 2007), Wydawnictwo Uniwersytetu Warszawskiego, Warsaw 2010, 243 pp. - reviewed by Małgorzata Radziukiewicz
Piotr Ciżkowicz, Andrzej Rzońca - The Fiscal Deficit and Its Impact on Economic Growth
The article describes the mechanisms by which fiscal expansion and the resulting fiscal deficit influence long-term economic growth.
Since the early 1930s, many economists have argued that fiscal expansion is capable of stimulating the economy at a time of recession. The authors do not address the issue of how effective fiscal expansion may prove to be in stimulating aggregate demand and, consequently, in relieving strong negative demand shocks. In their article, Ciżkowicz and Rzońca examine six channels of the fiscal deficit’s impact on economic growth based on an overview of research reports in this area. The analysis reveals that the fiscal deficit may inhibit economic growth through each of these channels, Ciżkowicz and Rzońca say.
First, a higher deficit today means higher taxes in the future. Second, an increase in the deficit may worsen the tax structure because it deepens income inequality between the rich and poor, which in turn provides an excuse for the authorities to raise taxes on income or capital, thus discouraging people from working, improving their skills, saving and innovating. Third, the deficit adds to the public debt, while crowding out spending on infrastructure, scientific research, and education. It also makes it easier to channel public funds to areas that do not generate benefits for society as a whole. Fourth, it absorbs private savings that could be used to finance corporate investment. Moreover, it adds to the uncertainty about future tax burdens and the stability of the economy, which is not conducive to investment. Fifth, it causes inflows and outflows of foreign portfolio capital, thus leading to fluctuations in the exchange rate and hindering international trade and, in effect, foreign technology transfers. Sixth, a persistent deficit leads to a crisis with time.
A specific level of fiscal deficit does not have the same consequences everywhere, according to Ciżkowicz and Rzońca. Its negative impact on economic growth is especially evident in countries with a high capital-to-income ratio, low domestic savings rate, significant barriers for businesses trying to adapt their savings to changes in the deficit, excessive public expenditure, high public debt, low income per capita, poor protection of creditors’ rights, high vulnerability to shocks, a strong dependence on the inflow of savings from abroad, a high proportion of debt denominated in foreign currencies and nearing maturity, poor credit history, and slow GDP growth.Keywords
: fiscal deficit, public debt, economic growth, fiscal policyArticle
Paweł Gajewski - Public Finance Sustainability in European Union Countries
The article aims to estimate the current level of public finance sustainability in the European Union, taking into account the starting fiscal position, the possibility of withdrawing fiscal impulses, the future costs of population aging, and possible financial market responses. The author achieves this objective by using an indicator method similar to that used by the European Commission. However, this method has been modified by diversifying projected GDP growth rates and public debt interest rates, Gajewski says. The assumption is that the interest rate may vary depending on the response of financial markets to the debt-to-GDP ratio.
The author demonstrates that almost all EU countries have lost their medium- and long-term fiscal sustainability. Greece and Ireland appear to be the worst off among the analyzed countries, Gajewski says. Both these economies suffer from a high structural budget deficit and potentially high costs of population aging. Most other countries will also be forced to make strong fiscal adjustments to achieve primary surpluses far exceeding those in the period before the financial crisis. The calculations also show that Sweden, Estonia and Bulgaria boast the highest levels of public finance sustainability in the European Union, the author concludes.Keywords
: public debt, public finance sustainability, financial crisisArticle
Jacek Prokop - The Emergence and Stability of Heterogeneous Cartels
The article focuses on the emergence and operation of cartels in sectors in which companies differ in terms of production costs. The authors show that stable cartels can operate in sectors made up of enterprises that are heterogeneous in terms of costs and based on price leadership. However, when it comes to the cartel formation process, there is a distinct difference between homogeneous and heterogeneous sectors, Prokop says. While the formation of a cartel in the case of homogenous firms may be difficult due to the “free-rider” problem, the author notes, in the case of heterogeneous companies no such obstacles exist and it can be expected that the process of creating a stable cartel will end in success.
The analysis was made using the author’s own model of the cartel formation process in the form of a single-period non-cooperative game with simultaneous decisions made by participants. To investigate the behavior of enterprises in the formation and operation of cartels, the Nash equilibrium concept was used. On the basis of the results obtained, it can be concluded that in the case of a sector with heterogeneous enterprises, the role of antitrust offices significantly increased in comparison to markets with homogenous firms, Prokop says. The theoretical analysis made by the author is illustrated with a case study for a district heating pipe cartel.Keywords
: cartels, cost heterogeneity, cartel stability, cartel formation process, antitrust policyArticle
Natalia Nehrebecka - Using Markov Chains to Predict Changes in the Structure of Polish Companies
The author proposes a method for predicting structural changes in Polish enterprises based on Markov chain theory. This method makes it possible to analyze the entry and exit of companies in specific business sectors, as well as to examine the migration of firms across sectors. Markov chains enable forecasts of the future composition of the corporate sector as well as computations of the average remaining lifetime and average age of companies in each category based on an appropriate fundamental matrix. This can serve as the basis for further conclusions concerning not only the economy as a whole, but also its individual components.
The findings presented in the article testify to the stability of Polish companies in changing economic conditions. The level of migration across sectors is low and limited to several sectors and the expected company lifetime is relatively short. On average, the lifetime of Polish companies is less than half that of Belgian companies surveyed by the National Bank of Belgium, for example. Generally, Nehrebecka says, transport companies have the shortest lifetimes in Poland, followed by companies active in sectors such as construction, “other services” and trade. On the other hand, companies operating in agriculture, the hunting-and-forestry sector and industry tend to stay the longest on the market. The average maturity of a sector, measured with the so-called “closeness to extinction” index for all the companies, is 46%. Non-specialized exporters show the highest average age in the analyzed sectors. State-owned companies have significantly higher average age and remaining lifetime than private companies. The larger the company, the higher is its average age and average remaining lifetime.
According to Nehrebecka, studies of the demographic evolution of businesses may be an additional point of reference for the evaluation of monetary policy transmission mechanisms and for shaping the institutional and legal environments in which businesses operate.Keywords
: business demography, Markov chains, transition matrixArticle
Anna Jarosz-Nojszewska - Aleksander Konstanty Ivánka (1904-1975)
The article reflects on the life and career of the late Hungarian-Polish economist and journalist Aleksander Konstanty Ivánka (1904-1975), with a special focus on his work during the period between the two world wars. A search at the Central Archives of Modern Records (AAN) in Warsaw and the Warsaw School of Economics (SGH) Archives, combined with an analysis of historic publications and material, enabled the author to retrace the course of Ivánka’s professional career, his work as an economist and journalist as well as his socioeconomic views.
Ivánka was a Pole of Hungarian origin who graduated from the Warsaw School of Economics and went to work as a senior official at the Ministry of the Treasury. He also worked at the Central Statistical Office (GUS) and was one of the closest collaborators of former Warsaw Mayor Stefan Starzyński. In 1931, together with a group of associates, Ivánka founded Gospodarka Narodowa, a weekly in which he published many of his articles. He was also a member of the editorial board of Gospodarka Narodowa. In his work as a researcher and journalist, Ivánka mainly dealt with issues related to cartels and trusts, but in the early 1930s he also studied internal trade statistics. During World War II, in his capacity as financial director of the City Administration, Ivánka played a major role in managing Warsaw’s finances. After the war he continued his research career. He lectured at the University of Warsaw, the Warsaw School of Economics—then called the Central School of Planning and Statistics (SGPiS)—and the Łódź University of Economics. He also worked at the Central Planning Office (CUP) and the central auditing office NIK. Ivánkawrote a book entitled Wspomnienia skarbowca (1964).Keywords
: Aleksander Ivánka, Gospodarka Narodowa, cartels, Stefan StarzyńskiArticle