Fiscal Policy and Economic Stability: Does PIGS stand for Procyclicality In Government Spending?

The Financial Crisis has hit particularly hard countries like Ireland or Spain. Procyclical fiscal policy has contributed to a boom-bust cycle that undermined fiscal positions and deepened current account deficits during the boom. We set up an RBC model of a small open economy, following Mendoza (1991), and introduce the effect of fiscal policy decisions that change over the cycle. We calibrate the model on data for Ireland, and simulate the effect of different spending policies in response to supply shocks. Procyclical fiscal policy distorts intertemporal allocation decisions. Temporary spending boosts in booms spur investment, and hence the need for external finance, and so generates very volatile cycles in investment and the current account. This economic instability is also harmful for the steady state level of output. Our model is able to replicate the relation between the degree of cyclicality of fiscal policy, and the volatility of consumption, investment and the current account observed in OECD countries.

A reflection on the future of the quality management paradigm in the EU

In recent years, the Quality Management Paradigm has successfully taken root in the European Union’s business environment. Quality management besides being a multivariate issue including matters from management and economics till engineering may be called a global knowledge in permanent bubbling. This theoretical article is an eclectic effort to analyse the evolution of the Quality Management Paradigm. More specifically, the article deals with this management Paradigm evolution and change according to the present and future expected business environments.