State Revenues and the Causes of Financial Instability: A Review of Empirical Research

The causes of financial instability most economists associate with the system of borrowing. So, Kaminsky and Richard uncovered the phenomenon of "double crises", which include the banking crisis and the balance of payments crisis . The authors also note that in the episodes that they analyze, the problems of the banking sector usually precede currency crises, and these latter then deepen banking crises, creating a vicious cycle that significantly reduces government revenues and expenditures.

There are many theoretical developments that analyze this specific effect of infection, where among the factors that cause the spread of crisis phenomena from one country to another, include the parameters of the relationship between the currency and stock markets, inter-country banking and foreign trade relations and their impact on government revenues.

Thus, in the context of globalization, the opening of financial markets, expansion of foreign trade, the risks of spreading financial instability and crisis phenomena from one country to another are increasing. All this currently forms risk factors that mediate the state revenues of the Russian Federation and its financial stability. Fiscal policy under such conditions is the controlling instrument of this stability.

Macroeconomic regulation during the period of financial instability and economic recession should be focused on maintaining economic activity and implemented through coordinated monetary and fiscal policies. The main fiscal instruments for regulating economic cycles, which determine state revenues, are, as is known, automatic and discretionary regulators. The effectiveness and sufficiency of automatic stabilizers during crises are widely discussed in the economic literature. The effect of automatic stabilizers is based on the simultaneous reduction of taxes with a decrease in production volumes and an increase in expenditures, in particular, social transfers, which together allows to optimize state revenues. The advantages of automatic stabilizers are that they work symmetrically throughout the whole business cycle: during periods of activity decline, they are immediately affected, they are less susceptible to political influence.

A popular view is also that according to which during the recession and economic crises, the actions of automatic stabilizers are not enough; There is a need to take measures of discretionary fiscal policy. Recognizing the necessity and expediency of activating the discretionary fiscal policy against the background of shocks that are currently taking place in the world economy, economists pay attention to the most acceptable instruments that allow maintaining state revenues at the proper level, assess the effectiveness of these instruments for different types of economies. A study conducted by the IMF found that the most effective instruments of fiscal policy in developed countries, where the effect of discretionary measures is positive in the short and medium term, while in emerging markets the short-term effect is positive and the medium-term effect is negative. The conducted calculations showed that the package of measures of discretionary stimulation at the level of one percent leads to an increase in GDP, on average about 0.1 to 0.2 percent.

Fiscal regulation in the period of economic downturns is based on the use of two main instruments of influence on economic activity - this is an increase in government spending while reducing taxes. The most debatable issue is the effectiveness of increasing spending to stimulate economic activity. The neo-Keynesians argue that the increase in government spending positively affects the overall consumption and growth of real wages. At the same time, many economists point to the danger of using such instruments as an increase in government spending. They can be useless and serve the interests of individual groups, rather than the economy as a whole. It is proved that the actions of fiscal multipliers can be even negative if the increase in government spending ultimately leads to a reduction in private investment and personal consumption. In addition, many researchers note that increasing government spending serves as a deterrent to long-term economic growth. Recent research also showed that fiscal strategy is less suitable for open economies, where the actions of fiscal instruments can be offset by capital movements and exchange rate regimes.

The danger of increasing budget expenditures is associated with an increase in inflationary trends. For countries that have a negative balance of payments and an inflexible exchange rate, raising public spending can have particularly negative consequences.