Essays on Exchange Rate Regimes and Fiscal Policy.

Summary This thesis focuses on the macroeconomic effects of exchange rate regimes on the one hand, and on recent developments in fiscal policy and decentralization on the other. Part I focuses primarily on the interaction between exchange rate regimes (ERs) and fiscal, monetary and tax policy. First, we show that ERs can have a stabilizing effect on fiscal policy (chapter 1). However, this stabilizing effect of CRs is not automatic but rather depends on the consequences of a lax fiscal policy. Chapter 2 looks at the causality between CRs and crises (banking/financial, exchange rate and debt) and challenges the bipolar view that claims that intermediate CRs are more vulnerable to crises than wedge solutions (fixed/flexible CRs). Our analysis shows that macroeconomic fundamentals (private sector credit volatility, deficit financing, and the debt-to-GDP ratio) play a considerable role. Chapter 3 highlights a link between CRs and fiscal policy. Countries with fixed CRs show a greater reliance on domestic revenues - such as VAT - than countries with intermediate/flexible exchange rates to compensate for losses in seigniorage revenues (substitution effect). In addition, these countries with fixed CRs collect more domestic revenues to compensate for the loss of customs revenues as a result of trade liberalization (competitiveness effect). In the last three chapters (Part II), we focus on fiscal policy and the effects of decentralization. Chapter 4 reveals a non-linear relationship between fiscal policy and the business cycle, which depends on the level of public debt. When the latter exceeds a certain threshold (87%), fiscal policy loses all countercyclical properties. We also show that the ex-ante disciplinary effect of fiscal rules helps to restore the countercyclicality of fiscal policy. In chapter 5, we show that fiscal decentralization, in a politico-institutional framework free of corruption, improves the supply of public goods and services. Chapter 6 concludes that decentralization has a positive impact on the structural balance. However, an asymmetry between expenditure and revenue decentralization increases the dependence of local governments on the central government in terms of transfers, and would considerably undermine the positive effect of decentralization.