Analyzation of Government Debt and Unemployment Rate (Research Paper Sample)

ECON 1010 – Macroeconomics 1
Policy Brief
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Part A: Diagnostics Analysis
Name of country: Spain
Indicator 1: Government Gross Debt (% of GDP)
Graph SEQ Graph \* ARABIC 1: Source: Eurostat, 2019.
Fluctuations in government debt over time illustrate the impacts of the budget deficit. This indicator is appraised as a percentage of Gross Domestic Product CITATION Dou15 \p 72 \l 1033 (McTaggart, et al., 2015, p. 72). In recent years, Spain has recorded an increase in general government gross debt (% of GDP). In 2011, the general government gross debt (% of GDP) of Spain was 69.5 percent and increased rapidly to 100.4 percent in 2014. In 2015, there was a slight decline to 99.3%, and since then, the general government gross debt (% of GDP) of Spain has remained above 97 percent CITATION Eur191 \l 1033 (Eurostat, 2019). The rising general government debt-to-GDP ratio of this country is a sign of deteriorating health of economy and issues in the sustainability of country finance.
Graph SEQ Graph \* ARABIC 2: Source: Eurostat, 2019.
The graph two above displays the quarterly figures of general government gross debt (% of GDP) of Spain for 2017 and 2018. From 2017 to 2018, the highest percentage was experienced in the first quarter of 2017, that is, 99.7 percent. Then, this percentage decreased steadily to 98.1% in the fourth quarter of 2017. Like in 2017, the first quarter of 2018 began with a higher percentage of 98.7 and ended with a lower percentage of 97.1 in the fourth quarter CITATION Eur19 \l 1033 (Eurostat, 2019). Between 2017 and 2018, we can conclude that the government of Spain had the highest budget deficit in the first quarter of 2017 and the lowest deficit in the fourth quarter of 2018.
Indicator 2: Unemployment Rate
Graph SEQ Graph \* ARABIC 3: Source: The World Bank, 2019.
The unemployment rate is an indicator in economics that gauges the proportion of a country’s labor force that is unemployed CITATION Joh151 \p 63 \l 1033 (Sloman, et al., 2015, p. 63). Since 2007, when the Global Financial Crisis occurred, Spain has had high levels of unemployment. In 2007, the unemployment rate was 8.2 percent and increased to and surged rapidly to 26.1 percent in 2013. From 2013, the rate of unemployment declined to 24.4 percent in 2014 and 22.1 percent in 2015. In 2018, the unemployment rate in Spain stood at 15.5 percent CITATION The192 \l 1033 (The World Bank, 2019). From the graph above, it is apparent that since the Great Depression of 2009 the unemployment level in Spain has remained above 15 percent.
Graph SEQ Graph \* ARABIC 4: Instituto Nacional de Estadística, 2019.
Figure four above shows the quarterly unemployment rate in Spain from 2017 to 2019. In 2017, the highest level of unemployment was encountered in the first quarter, that is, 18.8 percent and the lowest in the third quarter, that is, 16.4 percent CITATION Ins19 \l 1033 (Instituto Nacional de Estadística, 2019). The first quarter of 2018 experience a rise in the unemployment rate compared to the fourth quarter of 2017. The unemployment rate then dropped to 15.3 percent in the second quarter and 14.5 percent in the fourth quarter. In the first quarter of 2019, the percentage increased to 14.7.
Part B: Policy Brief
Briefing for the Prime Minister
Subject: Cutting government debt and reducing unemployment.
Executive summary
Since the Global Financial Crisis occurred in 2008, Spain has encountered an increase in government debt as well as unemployment. Addressing these issues will help to enhance economic growth. As a result, the leadership of this country should cut on public costs and improve the tax collection to reduce government debt. Moreover, enhancing education and skills, providing assistance to boost inter-regional migration, and slashing regulatory hurdles for firms will contribute to a decline in the unemployment rate.
Recommendations
* Cut public costs and enhance tax collection to reduce budget deficit.
* Enhance inter-regional migration to boost labor mobility.
* Enhance education and skills to boost employment prospects.
* Cut regulatory hurdles for firms to increase the ease of doing business.
Economic rationale
The macro-financial exposures in Spain have been declining since 2007 since private debt is falling and the financial system is becoming stronger CITATION The191 \l 1033 (OECD, 2018). However, macro-financial exposures when it comes to government debt have not substantially declined. The high general government gross debt (% of GDP), that is, 97.1 percent in 2018 creates threats to medium-term sustainability.
The labor markets are improving given the previous labor market changes and wage moderation CITATION Int17 \l 1033 (International Monetary Fund, 2017). The level of unemployment in Spain is gradually declining. For instance, in 2013, the unemployment level in this country was at its peak, that is, 26.1 percent. However, in 2018, the level of unemployment had declined to 15.5 percent showing a remarkable improvement in employment creation.
Despite this progress, the unemployment rate of 15 percent is still high, and in fact, Spain is among countries in Europe with higher unemployment. Long term unemployment and youth unemployment are particularly problematic in Spain are higher compared to the OECD average CITATION And191 \l 1033 (Rinke, 2019). Furthermore, the widespread of part-time and temporary employees is resulting in vulnerabilities as well as contributing to the rise in income inequalities.
The rapid surge in the unemployment rate in Spain during the Global Financial Crisis also resulted from structural factors. The studies show that 31 percent of fall in employment during the 2008-2009 economic downturn resulted from reduced labor matching CITATION The191 \l 1033 (OECD, 2018). Although Spain has experienced structural improvement in recent years, reduced labor mobility, high long term unemployment, and skill mismatch are likely to bar structural unemployment from decreasing to pre-crisis rate.
Justifications and the Rationale
Cut public costs and enhance tax collection
Government debt is a summation of budget deficits accumulated over the years. Typically, budget deficit arises when government spending exceeds the revenue collected through taxation. One way this government can reduce deficits is to public costs. Reducing public costs is feasible and can be done in several ways. For instance, the government should automate its services, such as procurement. Although the automation of services can result in job loss, automation will result in several advantages such as reduced costs, reduction in time for firms doing business with the government as well as a level playing ground for firms. Furthermore, the government should broaden its tax base by collecting funds from informal sectors and also put mechanisms in place to prevent tax evasion.
Enhance inter-regional migration
Labor mobility entails the ease with which workers can change location within the economy or between different countries. Spain is experiencing low labor mobility because of the absence of complete portability of housing and social rights CITATION I