Current Account Balance, (CAB) is one of the major macroeconomic indicator that helps to evaluate country's external vulnerability. The importance of the CAB as the main indicator of the external sector revolves around its meaning. The CAB represents transactions between Georgian residents and residents of the rest of the world; It includes balance of goods, services, primary and secondary incomes.

The first issue while analyzing the fiscal environment concerns assessing the fiscal policy direction – expansionary or contractionary. Expansionary fiscal policy entails expanding the budget deficit by cutting taxes or increasing expenditures, with a goal of stimulating the economy during slowdown. Contractionary fiscal policy works the opposite way.
The second issue regarding fiscal policy evaluation is its link with the economic cycle. Short run stability requires that, notwithstanding exceptional cases, fiscal policy should help smooth economic cycles, i.e. consolidate during a boom and expand during a recession. Analyzing fiscal policy cyclicality also allows for gauging the country's capability to pursue countercyclical fiscal 

Gender Budgeting

Tuesday, 17 April 2018 08:26

Gender budgeting is an approach of budgeting that includes gender perspective in all phases of country's budget cycle. Also referred as a Gender Responsive Budget, this practice promotes gender-informed public resource allocation in a support of gender mainstreaming. Gender budgeting does not imply preparing separate budget documents for men and women, nor does it simply mean a sex segregating of beneficiaries. What Gender Budgeting really promotes is the compatibility of the budgetary allocations with country's existing gender inequalities in order to close the gender gap. Understanding the subject's complexity, there is no universally adopted approach for Gender Budgeting. Therefore, its implementation strategy and institutional framework highly depends on the country's specific characteristics.

Potential VAT and the VAT Gap

Thursday, 12 April 2018 06:59

The Parliamentary Budget Office's (PBO) given publication aims to estimate potential value-added tax (VAT) and the VAT gap (difference between potential and actual revenues) in Georgia.
A tax gap, by simple definition, is the difference between maximum theoretically collectable and actual tax receipts. Since it is impossible to have an ideally effective tax system, the existence of a tax gap is inevitable. Nevertheless, due to the importance of tax revenues, tax gap minimization is a major goal of the state.

The Real effective Exchange rate (later exchange rate) has a significant influence on the behavior of the economic agents. Therefore, in order to establish the effective macroeconomic policy it is vital to analyze its fundamentals and their impact on the exchange rate. The aim of this paper is to study the effects of fiscal policy, specifically the effects of the budget expenditure on the exchange rate dynamics for Georgia.

Tax Revenue Analysis

Wednesday, 02 November 2016 11:32

This research publication analyses dynamics of tax revenues as well as assesses tax burden and tax response with respect to GDP.

Tax burden is estimated as a ratio of taxes to GDP. During 1996-2003 the size of tax burden was 8.4%-12%, while during 2004-2009 it reached at 25%. After 2009, the size of tax burden is stabilized by the adoption of “Organic Law of Georgia on Economic Freedom”.

In order to estimate response of taxes to policy changes, one should check the time series on stationarity. The results show that personal income tax, value added tax, and excises are nonstationary variables at the level. In contrast, profit tax, property tax and import duties are stationary variables.  

Fiscal Multiplier:Insight and Assessment

Friday, 16 October 2015 11:38

The fact that fiscal policy has taken one of the central roles in combating the global financial crisis (2008-2009) and dealing with its aftermath, has once again highlighted the importance of the design, measurement and implementation of fiscal policy. Well-designed fiscal policy can support medium term macroeconomic stability, an essential prerequisite for economic growth. However, while implementing the fiscal policy, the choice of fiscal instruments can have considerable impact on economic and budgetary effects. For example, international practices of successful fiscal consolidation are usually ones that based fiscal tightening on the reduction of government spendings rather than on the reduction of public investment or increase in taxes. Therefore, the role of fiscal multiplier as a tool of ensuring the accuracy of macroeconomic forecasting has increased.

Intervention by a Central Bank, in a broad sense, is defined as an official purchases and sales of foreign exchange in order to achieve one or more of the following objectives. For example, moderating exchange rate fluctuations and correcting misalignment; addressing sharp fluctuations in the exchange rate, high exchange rate volatility, wide bid-offer spreads relative to tranquil periods, sudden changes in foreign exchange market turnover, accumulating foreign exchange reserves and supplying foreign exchange to the market. Intervention in a narrow sense implies central bank foreign exchange operations when targeting exchange rate movements.

Output Gap

Monday, 06 April 2015 13:31

The main aim of the following research is to explain the meaning and content of the output gap and on the basis of widely accepted methods to measure output gap for Georgia.

The output gap is an indicator of the economic cycle. The output gap measures deviation of the actual output from its potential level. Potential output can be described as the maximum level of output that could be achieved by maximum utilization of resources while maintaining stable inflation. Thus, the output gap is often applied for assessment of economic activity with respect to its potential level.

The recent macroeconomic developments, such as the foreign and domestic factors causing the exchange rate depreciation along with the rising inflationary risks, has once again highlighted the importance of timely implementing active changes in fiscal policy in line with the monetary policy tightening. As there is a lively debate about the possible directions that fiscal policy could take: fiscal tightening, that would result reduced government spending and/or increased taxes or fiscal stimulus, that would result increased government spendings and/or reduced taxes. The aim of this research publication is to thoroughly analyze the possible effects of fiscal policy on the overall economy by presenting the international practices and main risks associated with their implication in short and long-run periods. Therefore, the publication only serves as an information pipeline for those interested in the issue.