ZEW Public Finance Conference 2023 on Fiscal Policy in Times of Crisis
On 4 and 5 May 2023, around 100 participants gathered at ZEW Mannheim for the annual Public Finance Conference. The focal point of this year’s event was fiscal policy-making in times of crisis.
This topic was also addressed by the keynote speaker, Professor Rüdiger Bachmann from the University of Notre Dame in the USA. He combined insights from his research papers on recent crises – the COVID and energy crises – with experiences from policy advising. This blend of practical research and reflection on political realities was well received by the audience. One key conclusion was that successful scientific policy advice is only possible if the relevant data is made accessible.
Indicators of the effectiveness of public spending
In her presentation, Professor Sarah Zubairy from Texas A&M University provided a comprehensive overview of the current state of research on fiscal multipliers. Conceptually, fiscal multipliers describe the ratio by which national income increases as a result of additional government spending. She emphasised that the multiplier effect of government spending crucially depends on the macroeconomic context. In a demand-driven recession with falling inflation, fiscal multipliers are larger than in a supply-side recession with rising inflation. Zubairy explained that this is due to the interaction of real and nominal wages. Specifically, downward nominal wage rigidity causes the real wage level to be above the theoretical optimum in times of falling inflation, leading to lower real wage increases due to government investment.
Insightful presentations on government investment and monetary policy measures
A successful addition this year was the inclusion of sessions by the MannheimTaxation ScienceCampus. On both afternoons, a total of four speakers presented groundbreaking research findings related to the conference’s main theme. On the first day of the conference, Professor Ethan Ilzetzki from the London School of Economics and Paolo Surico, a professor at the London Business School, presented new research on the effects of government investments. Using historical data, Ilzetzki demonstrated how government demand stimulated innovation in the production process for companies already operating at high capacity – a phenomenon he termed “learning by necessity”. On the other hand, Surico explained that the estimated magnitude of fiscal multipliers critically depends on the time frame under consideration. This insight not only consolidates the varying magnitudes of fiscal multipliers found in the literature but also contributes to understanding the long-run effects of government spending.
On the second day, Nora Traum, a professor at HEC Montreal, and Professor Benjamin Born from the Frankfurt School of Finance & Management took to the podium. Traum provided an insightful analysis of the US Federal Reserve’s unconventional monetary policy following the outbreak of the COVID-19 pandemic, specifically its direct intervention in the local bond markets. Born, on the other hand, shared his research on country spreads in both advanced and emerging economies, revealing a significant convergence since the 2008 financial crisis.
Financing structural EU reforms
Alongside the invited sessions, a joint policy roundtable on financing the structural transformation of the European Union was organised by ZEW and the European Stability Mechanism (ESM). Moderated by ZEW economist Professor Friedrich Heinemann, the esteemed panel featured Professor Thiess Büttner from the University of Erlangen-Nuremberg, Nadine Leiner-Killinger from the European Central Bank (ECB), and Matjaz Susec from the ESM, engaging in a stimulating discussion.
Over the course of the two-day conference, a total of 50 cutting-edge research papers covering a wide range of topics in public finance were presented and critically discussed by the participants. The conference featured 17 parallel sessions, delving into various subjects such as optimal tax design, wealth formation, fiscal policy in monetary unions, climate policy, inequality and redistribution, corporate tax incentives, income taxation, and pension systems.