Supplement Information to the August 2008 Economic and Workforce Development Task Force Report, August 2008

The 2008 disasters devastated businesses, farms, homes, schools, non-profit institutions, entire communities, and people’s lives across the state of Iowa. The Rebuild Iowa Advisory Commission (RIAC) is charged by the Governor to guide the state’s recovery and reconstruction process. The Economic and Workforce Development Task Force is respectfully submitting this report to be included and considered in the deliberations of the RIAC. While economic and workforce development are two issues that are inextricably linked and critical to Iowa’s rebuilding strategies, each also requires extraordinary attention in determining what needs to be considered in the very immediate and longer-term recovery. Supplement Information to the August 2008 Economic and Workforce Development Task Force Report

Federal Dynamics in Times of Economic and Financial Crisis

The global economic and financial crisis is a challenge for all governments, but particularly for federal states because divided and/or shared territorial powers make federations susceptible to coordination problems in fiscal policy making. This article explores the effects of the ongoing crisis on federal relations. Three kinds of problems that may become the cause of federal tensions and conflicts are evoked: opportunism of subgovernments, centralisation and erosion of solidarity among members of the federation. Our analysis of fiscal policies and federal conflicts of 11 federations between 2007 and the present reveals three kinds of coordination problems: shirking in the use of federal government grants, rent-seeking in equalisation payments, and over-borrowing and over-spending. Our results show that shirking remained limited to few cases and occurred only in the first part of the crisis. However, rent-seeking and over-borrowing and over-spending led to a reduction of solidarity among subgovernments and to increased regulation of the fiscal discretion of the members of the federation. Subsequently, tensions in federal relations increased - although only in one case did this challenged the federal order.

Fiscal sustainability and fiscal shocks in a dollarized and oil-exporting country: Ecuador

This paper investigates the fiscal sustainability of an emerging, dollarized, oil-exporting country: Ecuador. A cointegrated VAR approach is adopted in testing, first, if the intertemporal budget constraint is satisfied in Ecuador and, second, in identifying the permanent and transitory shocks that affect a fiscal policy characterized by inertia and a heavy dependence on oil revenues. Following confirmation that the debt-GDP ratio does not place the Ecuadorian budget under any pressure, we reformulate the model and identify two forces that push the fiscal system out of equilibrium, namely, economic activity and oil revenues implemented in the government budget. We argue that Ecuador needs to recover control of its monetary policy and to promote the diversification of its economy in order that non-oil tax revenues can replace oil revenues as a pushing force. Finally, we calculate quarterly elasticities of tax revenues with respect to Ecuador’s GDP and that of eight Eurozone countries. We illustrate graphically how the Eurozone countries with low positive or high negative elasticities’ levels suffer debt problems after the crisis. This finding emphasizes the pressing need for Ecuador to strengthen the connection between its tax revenues and output, and also suggests that the convergence of these elasticities in the Eurozone might contribute to the success of an eventually future fiscal union.

The Institutional, Economic and Social Determinants of Local Government Transparency

Interest in public accountability and government transparency is increasing worldwide. The literature on the determinants of transparency is evolving but is still in its early stages. So far, it has typically focused on national or regional governments while neglecting the local government level. This paper builds on the scarce knowledge available in order to examine the economic, social, and institutional determinants of local government transparency in Spain. We draw on a 2010 survey and the transparency indexes constructed by the NGO Transparency International (Spain) in order to move beyond the fiscal transparency addressed in previous work. In so doing, we broaden the analysis of transparency to the corporate, social, fiscal, contracting, and planning activities of governments. Our results on overall transparency indicate that large municipalities and left-wing local government leaders are associated with better transparency indexes; while the worst results are presented by provincial capitals, cities where tourist activity is particularly important and local governments that enjoy an absolute majority. The analysis of other transparency categories generally shows the consistent impact of these determinants and the need to consider a wider set of variables to capture their effect.