Fiscal policy in the COVID-19 era

Author: Chris Murphy

This paper analyses the COVID recession and the large fiscal policy response by modelling three scenarios using a macro-econometric model. Scenario comparisons show that the recession mainly arose from restrictions on certain consumer services to limit the spread of COVID-19. The large fiscal response to compensate for income losses in the restricted industries meant that unemployment was 2 to 3 percentage points lower for two years than otherwise would have been the case. However, there was over-compensation: for every $1 of income the private sector lost due to the restrictions, fiscal policy provided $2 of compensation. With the lifting of restrictions, the aftereffects of over-compensation are projected to generate excess demand driving inflation to a peak of 6 per cent. Also, three forms of over-compensation in the JobKeeper program that led the fiscal response had disincentive effects. The primary lesson for future pandemics is that fiscal policy should compensate, but not over-compensate, for income losses from health restrictions, both in aggregate and at the program level. The secondary lesson is that monetary policy needs to take more account of the stimulus already provided by the fiscal response, so that interest rates do not remain very low for too long.

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Occupational mobility in the ALife data: how reliable are occupational patterns from administrative Australian tax records?

Authors: Clara Hathorne & Robert Breunig

The purpose of this paper is to compare the distribution of occupation and rates of occupational mobility in the ATO Longitudinal Information Files (ALife) and the Household Income and Labour Dynamics in Australia (HILDA) datasets. As tax is not occupation dependent, occupation data from tax records may not be reliable. We find that occupational mobility in the ALife data is less than half that in the nationally representative HILDA data. In contrast, the distribution of occupation and its relationship with most key socio-economic characteristics appear relatively similar across the two datasets. However, occupation evolves differently over time in the two datasets and there are some differences between sexes.

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Cost-benefit analysis: then and now

Author: Peter Abelson

This paper describes and analyses the evolution of cost-benefit analysis to the present day. The paper starts with a brief history of cost-benefit analysis to the early 1970s. By this time, the core principles of CBA had been established and applied to some major projects. But CBA was in its youth and not widely accepted. The paper then discusses these core principles of CBA and concludes that these are largely unchanged in the last 50 years. However, the paper also describes some major issues of principle that remain largely unresolved over the 50 years. Turning to the practice of CBA, the paper describes the huge increase (internationally) in the applications of CBA over the last 50 years. It also describes some of the major developments in CBA methods, especially valuation methods, and the quality of CBA work that have enabled these major new applications. Despite these developments, the paper finds that there remain some significant practical difficulties in the use of CBA, albeit some a function of the political environment in which CBA is applied. There is then a brief concluding section.

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