Экономические науки/ 3.Финансовые отношения

Fourth year student in International Economics program, A. Potapova

Alfred Nobel University, Dnipropetrovsk, Ukraine

PhD in Pedagogy, G. Miasoid

Alfred Nobel University, Dnipropetrovsk, Ukraine

Fiscal policy of Ukraine

Measurement the effectiveness of fiscal policy is an urgent problem, especially in the times of financial and economic crisis, when some of the monetary levers have exhausted their potential to influence the situation. In many developed countries, rates of central banks are close to zero. On such background one phrase come in mind, this is attributed to Richard Nixon: «We are all Keynesians now».

But still remains an open question how effective are channels of budget expenditures and tax concessions to stimulate economic recovery or growth. The effectiveness of fiscal policy is understood by us as the magnitude of the fiscal multiplier, whose assessment is difficult problem, judging by the works of many Western macroeconomists and the variations in the results they obtained in their researches. But even more challenging problem for us is the assessment of actual fiscal multipliers, taking into account the influence of monetary indicators on the performance of economy. According to numerous scientists, and this is our opinion also, it is impossible to make judgments about the impact of fiscal policy on the economy, without considering its interaction with monetary indicators, and the mutual influence of decision-making processes in the fiscal and monetary sphere.

The Keynesian theory predicts that fiscal expansion has a positive effect on output. However, recently evidence was found in support of the opposite effect (e.g Giavazzi, Jappeli, Pagano (1998)). Aslund (2002) and Fisher and Sahay (2000) argue that in the transition economies, due to specify of the fiscal environment, these effects may prevail.

Keynesian theory is one of the theories that justifies using fiscal policy as a macroeconomic instrument. According to these macroeconomic approach, an increase in government expenditures leads to an expansion of output, and an increased price level.

However according to the classical approach increased spending of the government increased increases prices, but doesn`t change output; and on the other extreme, the new Keynesian approach suggests no change in the price level, but a significant output expansion.

As budget spending programs are typically skewed towards the last two months of the year, we expect budget expenditures to grow at a faster pace through the rest of the year. In addition, state budget revenue growth may continue losing steam due to weaker-than-projected export duties, a lower profit tax rate and slower economic growth. However, we believe that revenue growth will remain comfortable for the government to meet its state budget deficit target of 2.7% of GDP.

However, as a result of larger Naftogaz imbalances, the broad fiscal deficit is projected at 4% of GDP compared to the planned 3.5% of GDP. At the beginning of the year, the Naftogaz deficit was forecast at UAH 8.5 billion, almost half of the previous year. This amount was estimated taking into account a roughly 30% increase in natural gas tariffs to the population in the first half of 2013. However, due to declining population support of government measures and high inflation pressures during the first half of the year, the government postponed the tariff increase.

This paper models the conjecture of Ukrainian fiscal policy. The identification is achieved using the information of Ukrainian fiscal system.

The aim of this research is to analyze the fiscal expansion and fiscal policy of Ukraine.

Accordingly, monetary and fiscal policy should be coordinated to optimize the target indicator. In this study, we want to investigate: 1) how the regimes of fiscal and monetary policies are coordinated in Ukraine in the context of maximizing the impact of fiscal instruments to stimulate the economy, 2) what should be the regimes of current and anticipated fiscal and monetary policies in order to maximize the effectiveness of fiscal incentives. The importance of these questions is that the derivation of the parameters of coordination the regimes of fiscal and monetary policies will allow the government to increase the effectiveness of fiscal incentives and accordingly to accelerate the recovery growth in the Ukrainian economy. Another important outcome shall be the developing of methodology for assessing the effectiveness of government fiscal policy in tandem with changes in monetary indicators.

The effects of the fiscal policy are almost of the same direction as those in the developed countries. Analysis shows that fiscal expansion has a positive effect on output when financed by borrowing, and the opposite effect is found when fiscal expansion is tax financed. Ukraine evolves in the right direction, but if based on the results the direction would be long.

References:

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2. Heyets V. Innovative way of development - modernization project of development of the Ukrainian economy and society in the early twenty-first century. / V. Heyets / / Banking. - 2003. - № 4. - Pp. 3 - 32.

3. G. Kolodko Institutes, Policy and the Economic Growth / G. pads / / Questions of economy. - 2004. - № 7. - p. 35 - 50.

4. J.E. King / The Elgar Companion to Post Keynesian Economics / / Second edition - 2012 - p. 546-548