Most economists associate the causes of financial instability with the borrowing system. So, Kaminsky and Richard revealed 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, problems of the banking sector usually precede currency crises, and these latter then deepen banking crises, forming a vicious circle that significantly reduces government revenues and expenses.
There are many theoretical developments that analyze this specific effect of infection, where the factors causing the spread of crisis from one country to another include the correlation parameters between the foreign exchange and stock markets, intercountry banking and foreign trade relations and their impact on government revenues.
Thus, in the context of globalization, the opening of financial markets, and the expansion of foreign trade, the risks of the spread of financial instability and crisis from one country to another increase. All this currently forms risk factors that mediate the state revenues of the Russian Federation and its financial stability. Fiscal policy in such conditions is the controlling tool of this sustainability.
Macroeconomic regulation during a period of financial instability and economic downturn should be focused on maintaining economic activity and carried out on the basis of a coordinated monetary and fiscal policy. The main fiscal instruments for regulating economic cycles that determine government revenues are, as you know, automatic and discretionary regulators. The effectiveness and sufficiency of automatic stabilizers in times of crisis are widely discussed in the economic literature. The action of automatic stabilizers is based on the simultaneous reduction of taxes while reducing production volumes and increasing costs, in particular, social transfers, which together allows optimizing government revenues. The advantages of automatic stabilizers are that they work symmetrically throughout the entire business activity cycle: during periods of reduced activity, they have an immediate effect, they are less susceptible to political influence.
Also popular is the point of view according to which, during a period of recession and economic crises, the action of automatic stabilizers is not enough; there is a need for discretionary fiscal policies. Recognizing the necessity and expediency of intensifying discretionary fiscal policy against the background of shocks currently taking place in the global economy, economists pay attention to the most acceptable tools that allow maintaining government revenues at the proper level, evaluate the effectiveness of these tools for various types of economies. A study by the IMF found that fiscal policy instruments are most effective 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 negative. The calculations showed that a package of discretionary incentive measures at the level of one percent leads to an increase in GDP, on average, by about 0.1 - 0.2 percent.
Fiscal regulation in times of economic downturn is based on the use of two main instruments for influencing economic activity - this is an increase in government spending while reducing taxes. The most controversial is the question of the effectiveness of cost increases to stimulate economic activity. Neo-Keynesians argue that increased government spending generally positively affects consumption and real wage growth. At the same time, many economists point out the danger of using such tools as an increase in government spending, because 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 even be negative if the increase in government spending ultimately leads to a decrease in private investment and personal consumption. In addition, many researchers note that increased government spending serves as a deterrent to long-term economic growth. Recent studies have also shown that the fiscal strategy is less suitable for open economies, when the actions of fiscal instruments can be offset by capital flows and exchange rate regimes.
The danger of increased budget spending is associated with increased inflationary trends. For countries with a negative balance of payments and an inflexible exchange rate, increased government spending can have particularly negative consequences.