Call for papers - The Quality of Public Finances and Economic Growth (reference ECFIN/C/2008/011)

The Directorate-General for Economic and Financial Affairs (DG ECFIN) of the European Commission is organising a one-day workshop on 28 November 2008 in Brussels.

The objective of the workshop is to improve the understanding of the links between fiscal policy and long-run economic growth. This question has emerged in recent years as a new focal point for EU policy makers and is often termed as "quality of public finances" (QPF), referring to all arrangements of fiscal policy that promote long-run growth. Improving the QPF reflects the need to prepare the European economies for a dual challenge: (i) their ageing populations that will put additional demands on public finances and (ii) globalisation which raises international competition, increases factor mobility and potentially heightens the exposure to external shocks. While the soundness and long-run sustainability of public finances are the basic building blocks of QPF in tackling these challenges, other QPF components also need to be considered. They include, for example, growth-supportive, non-distortionary tax systems, sound fiscal governance, efficient and effective public spending and investment and promotion of business-friendly regulations. These other elements can help achieving the objectives of the Stability and Growth Pact directly by making public spending more efficient and indirectly by promoting growth potential. With the latter being a central goal of the Lisbon Strategy for Growth and Jobs, QPF could therefore potentially play a major role in linking the EU fiscal surveillance framework and the Lisbon Strategy.

The economic literature has provided abundant analysis and arguments on the necessity to promote sound fiscal policies and to increase the efficiency of public spending and tax systems. For instance, large public sectors, when combined with short-comings in other dimensions of QPF, usually tend to hamper long-run growth as they go along with higher tax burdens and inefficient public administrations. Some countries, however, have been successful in maintaining a large public spending share while promoting efficiency in public spending and sustainable fiscal positions. Both theoretical and empirical research also indicates that growth can under certain circumstances be supported when public expenditure is oriented more towards investment than consumption. This is particularly relevant for investment in human capital (through education and health spending), technical progress (R&D spending) and public infrastructure where a crucial question mark remains the efficiency and effectiveness of public expenditure. Moreover, the structure and efficiency of tax systems, good fiscal governance and low administrative burdens in the business sector can be important factors for long-run growth by supporting public policies' performance and facilitating structural reforms.

More generally, these elements relate fiscal policy to the functioning of factor, product and service markets. The latter is rooted in microeconomic behaviours such as, for instance, individuals' labour participation, skills' acquisition, or firms' investment choices. These elements, however, are also likely to be influenced by macroeconomic conditions in general and QPF in particular. The existing literature on QPF remains sparse and the number of elements to consider is wide. Furthermore, many of the elements influencing the QPF are themselves dependent on growth conditions rendering a causality analysis between these elements difficult. These issues make it difficult to draw useful policy-conclusions.

With a view to improving our understanding of the way these different elements link together, the Commission invites economists to write papers. Contributions should address the following set of questions:

(1) How can public expenditure and revenue systems help promote long-run growth? Which factors influence the link between public spending and growth? What determines the ability to achieve policy objectives (e.g. higher education attainment, more private investment in R&D) without creating new distortions? How can tax systems improve growth potential? How can fiscal governance frameworks improve the efficiency of public expenditure and revenue systems?

(2) How can the different dimensions of QPF be better embedded into macroeconomic growth analysis? What are the interlinkages between market outcomes resulting from microeconomic behaviours and QPF? Given the variety of factors entering the QPF, how can the potential omitted variable bias issue be overcome? How can endogeneity issues related to QPF and growth be tackled?

(3) How can QPF be better integrated into the EU's surveillance framework? Is a greater focus on QPF under the current rule-based fiscal framework warranted and would it lead to the desired policy priorities? How can the requirements and objectives of the Stability and Growth Pact and the Lisbon Strategy for Growth and Jobs be better linked and more effectively implemented? Are these strategies mutually reinforcing or are there trade-offs?  

We invite the submission of abstracts or annotated outlines (one to two pages) of preliminary papers related to the above mentioned issues.

Papers can be co-authored. (38 kB) A set fee of € 4,000 will be paid for each paper irrespective of whether they are authored or co-authored. In addition, the Commission will cover travel and accommodation expenses and provide a daily allowance in line with the contract provisions. Payments will be made in accordance with a service contract which must be signed before work on a paper begins. (83 kB)

The final papers have to be original work created in response to this call for papers and should roughly be 15,000-20,000 words in length. Authors will be required to send electronically a full draft of their paper to DG ECFIN by 24 September 2008 and to present it to the workshop. The final version of the paper should be submitted electronically by 19 December 2008.

Selection criteria

A selection committee will be set up to evaluate the submissions. The selection of the papers will be based on the following criteria:

• The clarity of the submission as assessed by the precision with which it (i) explains how the topic will be addressed, (ii) discusses the theoretical and/or empirical techniques that will be used to analyse specific issues, and (iii) explains the policy relevance of the analysis.
• The quality of the submission as measured by its potential to provide robust economic analysis that offers value-added vis-à-vis the existing academic literature on public finances and growth and relevance for policy making.
• The high-standing of the author/co-authors as demonstrated by academic excellence and a track record of publishing research on issues related to public finances and growth in leading academic journals. To facilitate this assessment, the submission should include an up-to-date curriculum vitae for the author/co-authors.
• The potential to form the basis of a fruitful exchange among the workshop participants.

Deadline for submission: 9June 2008

Paper outlines and curriculum vitae (including the co-author's) should be submitted electronically no later than 9 June 2008 to the e-mail address ECFIN-Qualityofpublicfinances@ec.europa.eu, clearly mentioning in the subject line of the e-mail the topic of the paper. This mailbox is reserved solely for submissions. The selection procedure is expected to be completed by the end of June. Candidates will be informed in due time of the outcome of the selection procedure.

Further information

Conditional on the quality of the papers, they could be published in a volume collecting the workshop proceedings.

For further information please contact salvador.barrios@ec.europa.eu or andrea.schaechter@ec.europa.eu.