Introduction to the special section on the public finance – growth nexus

Abstract

The deep economic contraction triggered by COVID-19 results in large budget deficits and ballooning public debts, which could pose serious fiscal challenges to several countries. COVIDrelated challenges amplify the difficulty of long-standing public finance problems, such as the sustainability of European welfare systems in the midst of ageing populations and the difficulties of taxing in a globalised world, where rich people and multinational companies hide their income and wealth through complex financial structures involving several countries. It is therefore even more important that scarce public resources are collected and spent well. The four articles in this special section of Society and Economy address different aspects of the nexus between public finance structure and economic growth. The first versions of these papers were prepared for the Budapest Public Finance Seminar 2019 on ‘Growth implications of state budget income and expenditure structure’, held in Budapest, Hungary on 23 May 2019, and organised by the Hungarian State Treasury. The initial conference papers were developed into academic articles and were subject to the same level of peer review as any other article in Society and Economy. The order of the articles in this special issue reflects the order they were presented at the conference. It was a great privilege for me to deliver the keynote speech at the conference in which I focused on some big picture issues, drawing on a large body of existing research. The specific aspect I emphasise is the income distributional impacts of public finance structure and effectiveness, in addition to aggregate economic growth impacts. Both the academic and policy discussions of distributional issues became more prominent in the past decade. My main argument for a fair distribution of income as reflected in low-income inequality is that income inequality typically implies inequality of opportunity. While ‘fairness’ is a complex concept, whatever definition is adopted, it cannot be regarded as ‘fair’ if two persons reach different outcomes when they have the same talents and make the same effort, just because of their different family backgrounds. My analysis of public finance structures of European Union