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					                     Development of Budget Block in RIM model
   Any macroeconomic or inter-industry model should contain a block in framework of
which government sector parameters are estimated in the most complete form reflecting
all economic interactions of the state with business and the population. At present, the
Budget block in the RIM model includes the following 5 elements:
      1. balance of the consolidated budget incomes and expenditures(that is the Federal
         budget, regional and local budgets);
      2. balance of the extra-budgetary funds incomes and expenditures (that is Pension
         Fund, The Federal and local Funds of compulsory social insurance and the Fund
         of the social insurance);
      3. institutional accounts for Government sector;
      4. government consumption in current and constant prices at the industry level (as
         a part of I-O tables);
      5. industry deflators of government consumption.
   In the current moment, the statistical base is consists of the following data sets:
       incomes and expenditures of the consolidated budget in the following
         classification (for the national economy as whole, without the industry levels
         for 1980-2008);
       incomes and expenditures of the extra-budgetary funds (for the national
         economy as whole, without the industry breakup for 1993-2008);
       tax rates (1980-2008);
       institutional accounts parameters for Government sector (for 1999-2006)
       calculated indicators of the government consumption in current and constant
         prices (for 1980-2008).
   Calculation of the Block №1.
   All indicators are calculated for the consolidated budget.
                                          1. Consolidated budget
Incomes                                    share,%   Expenditures                                   share,%
                                           (2008)                                                   (2008)
Total                                        100     Total                                            100
Tax incomes, including:                       86     State and municipal debt service                  1
Company profit tax                            16     General and local government                      6
Personal income tax                           11     National defense                                  8
Single social tax                             3      Law enforcement and state security guarantee      7
VAT                                           14     National economy, including:                      25
Excises                                       2        construction, fuel and electricity             0.3
Resources payments                            13       agriculture and fishery                         2
Export duties                                 18       transport, communication                        7
Import duties                                 4        housing - communal utilities                    8
Non-tax incomes, including:                   14       environmental protection                       0.2
Revenue from use of government property       3      Social-cultural arrangements, including:          30

Surplus/deficit                              100      education                                        12

Internal financing of surplus/deficit         92      public health                                    8
 government paper issue (net)               -14.5     social policy                                    8
 funds left on government accounts          124.7     culture                                          2
External financing of surplus/deficit         8      Scientific researches                             1
 repayment of external debt                   10     Inter-budget transfers                            13




The basic program of the budget block calculation is:
           1. estimation of tax revenues indicators (its share is about 90% in the total
                income amount);
           2. calculation of values of internal and external sources of financing of budget
                surplus/deficit;
           3. using the results of the first two steps the indicators of budget expenditures

                are forecasted.
                               The principal scheme of the budget block
           Exogenous indices

                                                                        Budget
              Tax rates
                               Macroeconomic and                       revenues
                                 inter-industrial
              Oil prices            indicators
              Gas prices

                                  Taxable base
            Funds left on                                            Budget
            government
              accounts
                                                                   expenditures

             External debt
            (formation and
                                                                  Surplus/deficit
              repayment)                                         Internal and external
                                                                 sources of financing
             Government                                                 budget
           securities’ issue                                        surplus/deficit




   Revenues from VAT, personal income tax, company profit tax are modeled according
to the standard scheme:
                       Tax revenues = coefficient * tax base * tax rate
   The coefficient calculated by the regression equation has sense of tax collectability.
This type of the regression is reasonable only for taxes with flat fixed rate.
   Also the other equation is used for the taxes without flat fixed rate (excise taxes,
payments for natural resources usage, export and import duties):
                               Tax revenues = coefficient * tax base
   The regression coefficient is a so-called “effective rate”, which changes both with
changes of tax rate and tax collectability.
    (slide 6)The next step is modeling indicators of internal and external sources of
financing budget surplus (deficit). The internal sources of financing are modeled as
follows:
    internal sources of financing budget surplus / deficit = coefficient1*funds left on
 government account + coefficient * (government securities’ issue – refund internal
                                              debt)
   Owing to budget balance the value of money funds left on government accounts after
each reported period is indicated as a part of internal sources of financing surplus. In our
model it is set exogenously that let us to represent the government policy in terms of
expended and saved current finances: the more the value of funds on government
accounts is the less budget finances have been expended during the reported period.
   The volume of the government securities’ issue (theoretically the main source of
internal financing of budget surplus) and the volume of refund internal debt are put
exogenously and represent the government policy on the Russian financial market. Last
years the value of the government securities’ issue doesn’t exceed 1% of GDP. After the
default in 1998 Russian government bewares to use actively this tool of budget policy for
increasing the value of financing of budget expenditures. Nevertheless, under the
conditions of the sharp budget incomes reduction the Government decided to escalate the
volumes of the securities issue to 3% to GDP in 2009 and 1.5% to GDP to 2010-2011.
This fact was taken in the consideration during the scenarios design.
   The volume of external financing is determined by the following equation:
    external sources of financing budget surplus / deficit = coefficient*repayment of
                                government external debt

   This equation shows the government policy in relation to the external debt: the
favourable conditions on world oil and gas markets have been used for early repayment
of accumulated USSR and Russian external debt without attraction of new considerable
volume of external financing. In the current economic conditions such budget policy
became impossible and within 2010-2012 the Ministry of finance plans to borrow about
60 billion dollars on the external markets.
      The Russian budget is balanced, so the expenditures are modeled by the following
scheme:
surplus/deficit = - (internal + external sources of financing budget surplus/deficit)
        expenditures = (revenues – budget surplus/deficit) + oil-and-gas transfer
   The oil-and-gas transfer is cash resources from the saved up oil-and-gas funds used
for financing of the budget deficit under the crisis conditionsа. These funds were
accumulated during 2004-2008 from the extra budget incomes from the high prices on
energy sources and should serve as an «airbag» on a case of sharp falling in oil and gas
prices. It is planned to use more than 90% of accumulated volume of the oil-and-gas
funds during 2009-2012 for the budget deficit financing.
   Having estimated the total budget expenditures value and having set exogeneously the
expenditure structure (as the budget policy representation) we obtain the forecast budget
expenditure indicators for all functional directions.
   Calculation of the Block №2.
   For the extra-budgetary funds parameters calculation we use a little bit different
scheme than for the consolidated budget indicators.
   Particularly, only incomes from the single social tax and insurance contributions are
calculated for determining the tax incomes of the extra-budgetary funds. Also the inter-
budget transfers from the consolidated budget to the funds for financing their deficit form
a non-tax part of these funds revenues.
                                             2. Extra-budgetary funds



  Incomes                                      share,%   Expenditures                   share,%
                                               (2008)                                   (2008)
  Total                                          100     Total                            100
  Tax incomes, including                          45     Social-cultural arrangements      94
  Single social tax                               44       social policy                   78
  Non-tax incomes, including                      55
  Inter-budget transfers from consolidated        54
  budget




   The expenditures of the extra-budgetary funds are estimated for only one item that is
the expenditures for the social policy:
  Expenditures = regression coefficient * number of pensioners * average pension
The average pension value is an exogenous parameter which is determined by the
published government program during the nearest 3 years and through the growth rate for
the further time period.
The quantity of pensioners and other persons received benefits are estimated in the
demography and labor block.
   According to the forecast indicators of the extra-budgetary incomes and expenditures
their surplus (or deficit) and necessary volume of additional means from the consolidated
budget for this deficit financing are calculated. So, the greater deficit is formed in the
extra-budgetary funds balance the less cash assets from the consolidated budget remains
on the government investments, as other expenditures items (defense, state debt service
and others) are more or less stable.
    Calculation of the Block №3.

            Budget indicators


                Calculation in G7                                           Institutional Accounts
                                                                                   for sector
                                                                                “Government”



            Inter-industry and
            macroeconomic indicators


    Here I only result the principal estimation scheme (the full version named as … is
available on the www.macroforecast.ru site).




*va (41) – value-added of Education sector, va(42) – value-added of Public Health sector, va(43) – value-added of
Government sector from OKVED interindustry balances; similarly for the “wages” parameters.

    Calculation of the Block №4.
   In framework of the RIM model all nonzero components of a public consumption
vector are estimated. Calculations is performed with use of the budget and extra-
budgetary funds expenditure parameters (result of the calculations in the 1 st and 2nd
blocks).
                4. Government consumption (I-O tables, 2nd quadrant)
              Government consumption in current prices   structure, %, 2008
              Agriculture                                       0.3
              Food, beverages, tobacco                         0.002
              Textiles, apparel, leather                        0.1
              Pharmaceuticals                                   0.1
              Automobiles, highway transport equipment          0.4
              Recycling                                         0.1
              Electric, gas, and water utilities                1.1
              Wholesale and retail trade                        0.0
              Hotels and restaurants                            0.2
              Transport and storage                             0.8
              Finance and insurance                             0.4
              Real estate                                       8.9
              Equipment rental                                  0.0
              Computing service                                 0.0
              Research and development                          6.9
              Government, defense, social insurance            37.9
              Education                                        13.9
              Health services                                  17.8
              Other social and personal services               11.2



   However, to not make my presentation too long I’ll demonstrate equations only for
significant vector components (on the slide they are noted by red colour): real estate,
government management (including national defense) and compulsory insurance,
education, public health, other social and personal services (including culture). We’ve
chosen the most natural equations modification when the each component of the
government consumption vector is calculated depending on the relevant budget cost
items.
              The main equations of the Government consumption block
                        Government consumption
                                      Real estate
596746




                                                                       SEE             50913.14
                                                                       MAPE             45.07
310162                                                                 R2               0.9133
                                                                       ¯R2              0.9061
                                                                       Durbin-Watson     0.80
                                                                       RHO               0.60
23577

1995                          2000                          2005
  Predicted    Actual




         gov36 = 47182 + 0.47820 * jkhK

        gov36 – government consumption in current prices of Real Estate
        jkhK – consolidated budget expenditures on housing-communal utilities




              The main equations of the Government consumption block
                        Government consumption
                        Government, defense, social insurance
2580368



                                                                       SEE             72553.52
                                                                       MAPE             10.99

1355563
                                                                       R2               0.9904
                                                                       ¯R2              0.9886
                                                                       Durbin-Watson     1.70
                                                                       RHO               0.15
130758

1995                           2000                             2005
  Predicted    Actual


         gov41 = 131905 + 1.42816* upravK + 1.29910 * oboronK

        gov41 – government consumption in current prices of Government, defense, social insurance
        upravK – consolidated budget expenditures on general and local government
        oboronK – national defense
              The main equations of the Government consumption block
                        Government consumption
                                     Education
1002563



                                                             SEE                31988.06
                                                             MAPE                13.69

527726                                                       R2                  0.9871
                                                             ¯R2                 0.9860
                                                             Durbin-Watson        1.28
                                                             RHO                  0.36
52888

1995                        2000                     2005
  Predicted    Actual




          gov42 = 53240 + 0.58449* educatK

          gov42 – government consumption in current prices of Education
          educatK – consolidated budget expenditures on education




              The main equations of the Government consumption block
                        Government consumption
                                   Health services
1223702




                                                             SEE                41018.45
                                                             MAPE                 16.56
645539                                                       R2                   0.9871
                                                             ¯R2                  0.9861
                                                             Durbin-Watson         0.37
                                                             RHO                   0.82
67377

1995                        2000                     2005
  Predicted    Actual




          gov43 = 73406 + 1.07452* pubhealK

          gov43 – government consumption in current prices of Health services
          pubhealK – consolidated budget expenditures on public health
                  The main equations of the Government consumption block
                           Government consumption
                           Other social and personal services
    747910




                                                                       SEE                  39536.79
                                                                       MAPE                   26.59

    383700                                                             R2                    0.9701
                                                                       ¯R2                   0.9677
                                                                       Durbin-Watson          2.08
                                                                       RHO                    -0.04
    19491

    1995                        2000                            2005
      Predicted   Actual



              gov44 = 2.20684* culK + 0.16033 * socpolK

             gov43 – government consumption in current prices of Other social and personal services
             culK – consolidated budget expenditures on culture
             socpolK – consolidated budget expenditures on social policy




   As you can see there are not unity independent variable coefficients because of the
principal differences between the budget classification and the SNA classification.
   The estimation of the public consumption vector in the constant prices is performed
with calculated public consumption vector in current prices and its industry deflators.
           Government consumption in constant prices = government consumption in
                                            current prices / industry deflator
   The block №5.
   In the RIM model the industry deflators are calculated for the nonzero components of
the government consumption.
                                        5. Deflators of Government consumption
                         Industry deflators of Government consumption          value, 2008 (2000=1)
                         Agriculture                                                    3.6
                         Food, beverages, tobacco                                       4.5
                         Textiles, apparel, leather                                     3.3
                         Pharmaceuticals                                                6.2
                         Automobiles, highway transport equipment                       2.9
                         Recycling                                                      4.7
                         Electric, gas, and water utilities                             4.0
                         Wholesale and retail trade                                     4.0
                         Hotels and restaurants                                         2.9
                         Transport and storage                                          3.5
                         Finance and insurance                                          3.0
                         Real estate                                                    3.5
                         Equipment rental                                               3.6
                         Computing service                                              4.0
                         Research and development                                       3.0
                         Government, defense, social insurance                          4.3
                         Education                                                      5.4
                         Health services                                                5.5
                         Other social and personal services                             4.6



Here I present equations only for the significant vector elements:

                                    The main equations of the deflators block
           Industry Deflators of Government consumption
                                    Real estate
 3.63



                                                                        SEE                            0.17
                                                                        MAPE                          14.79

 1.91                                                                   R2                            0.9713
                                                                        ¯R2                           0.9689
                                                                        Durbin-Watson                  1.23
                                                                        RHO                            0.39
 0.20

 1995                        2000                      2005
   Predicted    Actual




           dpub36 = -0.05663 * (jkhK/jkhK[1]) + 1.29056 * dpce36

         dpub36 – deflator of Government consumption of Real Estate
         jkhK – consolidated budget expenditures on housing-communal utilities
         dpce36 – deflator of Household consumption of Real Estate
    In this equation the dynamics of the budget expenditures for housing-communal
utilities and the appropriate industry deflator of the households consumption are used as
explanatory variables. The last parameter was chosen as Real Estate business serves both
government organizations and households that cause the synchronism in the price
dynamics for both consumer categories.



                                         The main equations of the deflators block
           Industry Deflators of Government consumption
                               Government, defense, social insurance
 4.32



                                                                                     SEE              0.16
                                                                                     MAPE             6.85
                                                                                     R2              0.9801
 2.47

                                                                                     ¯R2             0.9744
                                                                                     Durbin-Watson    2.39
                                                                                     RHO              -0.20
 0.62

               2000               2002             2004                2006   2008
   Predicted          Actual


    dpub41 = -3.31039* (gov41/gov41[1]) + 3.14307* (wages41/wages41[1]
             + 1.16606 * dfd

   dpub41 – deflator of Government consumption of Government, defense and social insurance
   gov41 – Government consumption in current prices of Government, defense and social insurance
   wages41 – wages in Government, defense and social insurance
   dfd – GDP deflator




        In this equation the appropriate budget expenditures dynamics as well as GDP
deflator and industry labor compensation dynamics are used. Our ideas about price
formation on the government services determine such equation modification: it is salary
value defines the industry costs and is connected with both increase in staff of civil
servants and their salary indexation.
                            The main equations of the deflators block

           Industry Deflators of Government consumption
                                Education
 5.43


                                                          SEE                 0.18
                                                          MAPE                17.11
                                                          R2                 0.9883
 2.75
                                                          ¯R2                0.9862
                                                          Durbin-Watson       0.88
                                                          RHO                 0.56
 0.06

 1995                    2000                2005
   Predicted    Actual



   dpub42 = -0.08030* (educatK/educatK[1]) + 0.98190*dpce42 +0.40289*dpub36

   dpub42 – deflator of Government consumption of Education
   educatK – consolidated budget expenditures on education
   dpce42 – deflator of Household consumption of Education
   dpub36 – deflator of Government consumption of Real Estate




    Here we use the dynamics of the consolidated budget expenditures for education, the
households consumption deflator for industry “Education” and the public consumption
deflator for industry “Real estate” as independent equation parameters. As to use
corresponding deflator of the population, here is the same reason, as in equation for
public consumption deflator for industry “Real estate”. Concerning use government
consumption deflator for this industry we have considered the following fact: dynamics
of the state expenses on the maintenance citizens with free-of-charge education, public
health services, etc. is strongly influenced with the corresponding organizations costs for
housing and communal services. It means schools, hospitals and so on have to pay for
housing-communal utilities as all other economic agents.
                               The main equations of the deflators block
                Industry Deflators of Government consumption
                                 Health services
      5.62




                                                               SEE              0.17
                                                               MAPE            15.06

      2.93                                                     R2              0.9892
                                                               ¯R2             0.9860
                                                               Durbin-Watson    1.89
                                                               RHO              0.05
      0.24

     1995                     2000                 2005
        Predicted    Actual



     dpub43=-0.74668+0.02675*dpub13+0.37674*(gov43/gov43[1])+1.37382*dpce43

     dpub43 – deflator of Government consumption of Health services
     dpub13 – deflator of Government consumption of Pharmaceuticals
     gov43 – Government consumption in current prices of Health services
     dpce43 – deflator of Household consumption of Health services




   As to the following equation only government deflator for the industry
«Pharmaceutics» using as an independent variable demands the separate comment. The
choice of this variable was quite natural: the essential share in the state expenses for the
maintenance of public health services organizations is created with charges on purchase
of medicines.
   Last equation is constructed by the same principles as all previous and does not
demand the separate comment.
                                  The main equations of the deflators block
           Industry Deflators of Government consumption
                         Other social and personal services
 4.75



                                                                     SEE                0.51
                                                                     MAPE              40.70

 2.32                                                                R2                0.8664
                                                                     ¯R2               0.8263
                                                                     Durbin-Watson      0.68
                                                                     RHO                0.66
 -0.11

 1995                         2000                            2005
   Predicted    Actual


   dpub44= 0.66470 + 0.20224 * (culK/culK[1]) - 0.61419 * (socpolK/socpolK[1])+
          +1.92432*dpce44

   dpub44 – deflator of Government consumption of Other social and personal services
   culK – consolidated budget expenditures for Culture
   socpolK – consolidated budget expenditures for Social policy
   dpce44 – deflator of Household consumption of Other social and personal services




         Forecast results.
     As forecast in framework of the RIM model have not been completed yet, I’m going
to present some forecast results for budget parameters obtained with the macroeconomic
model QUMMIR. The budget indicators are in fact macroeconomic so in case we use the
same estimation scheme in interindustry and macro model the forecast results will be
similar.
     As you can get from a slide, Russian budget system will face with a huge deficit
problem. Such fail result will be observed both for the consolidated budget and extra-
budgetary funds. Even under condition of steady economic growth the budget deficit will
be negative reducing to –0.7% to GDP. For comparison the surplus was +8% to GDP in
2007. According plans of Russian Ministry of Finance there will be three sources for
financing budget deficit:
     1.        loans on the internal market by means of government papers issue: its necessary
               value should be twice more than during pre-crisis period;
     2.        loans on the external markets: about 60 bln. Dollars are planned to be involved
               till 2012. As I believe actually it won’t be inconveniently to loan this sum. For a
         example, in 2008 Russian bank system foreign debt increased by 56 bln. Dollars
         and even in the 2nd quarter of 2009 non-finance organizations loan about 17.5
         bln. Dollars.
   3.    and the main source for budget deficit financing is using of the extra budget
         incomes from high oil prices accumulated during 2004-2008 in oil-and-gas
         funds. By the end of 2012 these funds will decrease by 90%.
   As to extra-budgetary funds deficit it may became one of the most important problem
for Russian budget system because of growth of retired number. At the present moment
the Federal budget transfers are used for financing the Pension fund deficit. Beginning
from the next year according a new tax reform the incomes of the social funds will
increased considerably, but this increase won’t be enough for the comprehensible
pensions growth. Therefore, it will be necessary to transfer about 5-8% of the total value
of the budget expenditures for financing extra-budgetary funds deficit. And this fact will
be reduce the possibilities of the state investments in fixed capital, national defense and
infrastructure projects.

				
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posted:9/15/2012
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