Fiscal Deficit and its effects on economic growth

Kryeziu, Nexhat; Hoxha, Egzon

doi:10.20525/ijfbs.v10i1.1064

Cited by 5 publications

(6 citation statements)

References 21 publications

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“…Their study also witnessed that there is a bi-directional causality between budget deficit and economic growth. Similarly, the work of [ 35 ] Found that fiscal deficit has a positive relationship with the economic growth for the panel of Eurozone countries during the study periods of 1995 to 2015. Employing the multiple linear regression estimation technique, their study found that long deficits are harmful compared to short deficits in the study area during the period under investigation.…”

Section: Literature Reviewmentioning

confidence: 79%

On the fiscal deficit and economic growth in sub-Saharan Africa: A new evidence from system GMM

Sore,

Ayana,

Demissie

2024

PLoS ONE

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Using a two-step approach GMM, this study examines the short- and long-term effects of fiscal deficit on the economic growth of 42 Sub-Saharan African nations between 2011 and 2021. The World Development Index, the most reliable source, is where the panel data is taken from. Using the Levin-Lin-Chu and Hadri LM tests for unit root, it was determined that there is no risk of a random walk in the data. The study’s findings indicate that while the fiscal deficit has short-term, positive, and significant benefits on the economic growth of SSA countries, it has long-term, negative repercussions. According to the system GMM’s results, an increase in the fiscal deficit of SSA countries is linked to a short-term increase in economic growth of 0.036 percent, while an increase in the fiscal deficit of one percentage point is linked to a long-term decline in economic growth of SSA countries of 0.013 percent, holding all other factors constant. The study’s findings also showed that the budget deficit has a larger positive short-run coefficient than a negative long-run coefficient. The study also revealed that while real effective exchange rates and inflation short-term hinder economic growth, gross fixed capital creation and real interest rates are the primary drivers of economic expansion. Long-term economic growth in the SSA countries is also found to be positively and significantly impacted by gross fixed capital formation. According to the study, SSA nations should manage their fiscal deficits and, in the long run, provide more funds for gross fixed capital development.

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Section: Literature Reviewmentioning

confidence: 79%

On the fiscal deficit and economic growth in sub-Saharan Africa: A new evidence from system GMM

Sore,

Ayana,

Demissie

2024

PLoS ONE

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“…In a similar vein, the findings of this study, such as those of Navaratnam and Mayandy (2016), showed that the fiscal deficit has a negative influence on economic growth in all of the South Asian nations included in this study, with the exception of Nepal, where the results showed a positive impact. Additionally, some literature also confirmed that the fiscal deficit is positively influenced the economic growth (Aslam, 2016;Kryeziu and Hoxha, 2021).…”

Section: Brief Literature Reviewmentioning

confidence: 85%

Does Fiscal Deficit Cause Economic Growth? Evidence from Nepal

Gajurel

Dangal

2023

Gyanjyoti

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The fiscal deficit soared tremendously after Nepal endorsed economic liberalization aftermath of the 1990s democracy. The purpose of the paper is to investigate the effects of fiscal deficit in the economic growth of Nepal. Data from 1980 to 2019 were used to estimate the short- and long-run causal relations of fiscal deficit proxied by total government expenditure minus total government revenue as a percent of gross domestic product (GDP) and growth rate of real GDP as a proxy of economic growth along with other control variables. The autoregressive distributed lag (ARDL) error correction regression and vector error correction model (VECM) Granger causality have employed to meet the purpose of the study. The study reveals that there is short-run statistically significant negative relationship between Nepal's economic growth and the fiscal deficit of the previous year. However, both domestic and foreign loan and economic growth have positive and significant relations in short run. In contrast, the results reveal that there is positive but not significant relationship between the fiscal deficit and the economic growth of Nepal in long run. The Granger causality suggests that fiscal deficit does not Granger cause the economic growth of Nepal. However, economic growth does Granger causes the fiscal deficit in Nepal. Thus, the growth-driven fiscal deficit will be more effective in the economy of Nepal. Based on stylized facts, it will be necessary to redirect deficit financing into productive channels in order to enhance the sustainable economic growth.

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“…The prior studies give results, like, Nayab (2015) found that FD does not affect GDPg in the case of Pakistan, Rahman (2012) in the case of Malaysia, and Thirunavukkarasu and Achchuthan (2013) in the case of Sri Lankan. However, Ahmad (2013) found that there is a positive link between FD and GDPg in the case of Pakistan, Kryeziu and Hoxha (2021) in the case of Eurozone, Qehaja-Keka et al (2023) in the case of Eurozone countries, and Pelagidis and Desli (2004) in case of some European countries. However, Tung (2018) concluded that FD had harmful effects on GDPg in the case of Vietnam, Hassan and Akhter (2014) in the case of Bangladesh, Navaratnam and Mayandy (2016) in case of the countries of South Asia and Nepal the impact was positive and Iqbal et al (2017) in the case of Pakistan.…”

Section: Regression Resultsmentioning

confidence: 99%

“…Further investigation into the influence of the budget deficit on real GDP demonstrates that the Keynesian theory is applicable in Malaysia. Kryeziu and Hoxha (2021) used Eurozone data from 1995-2015 and employed an OLS to carry out the investigation and provide the findings. They show that increasing the deficit ratio to GDP has a beneficial influence on the GDPg.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The effect of FD on GDPg was discussed broadly in the different studies but the effect of the FD on GDPg remains controversial among the researchers. Some scholars argued that FD shad an adverse effect on GDPg like Tung (2018), Hassan and Akhter (2014), Navaratnam andMayandy (2016), andIqbal et al (2017), while, others argued that the effect of FD on GDPg is positive such as Ahmad (2013), Kryeziu and Hoxha (2021), Qehaja-Keka et al (2023), and Pelagidis and Desli (2004). Some argue that economic growth and fiscal deficit have no association with each other Nayab (2015), Rahman (2012), Thirunavukkarasu and Achchuthan (2013).…”

Section: Literature Reviewmentioning

confidence: 99%

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The impact of fiscal deficit on economic growth: empirical evidence from Pakistan and Afghanistan

Masheed,

Hassanzai,

Ullah

et al. 2024

Lib. Arts Soc. Sci. Int. J.

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The economic crises of Pakistan and Afghanistan are linked to the high fiscal deficit in the past, which has affected economic growth. The research aims to investigate the effect of fiscal deficit on economic growth with the data from 1973 to 2022 in Pakistan and 2002 to 2022 in Afghanistan and the ARDL procedure to estimate the model. The study investigates whether the fiscal deficit improves economic growth and how much the deficit can be minimised to maintain economic stability in Pakistan and Afghanistan. This study found that, over a long period, the fiscal deficit adversely impacts GDP growth in Pakistan. Similarly, the national debt has an adverse effect on GDP growth in Afghanistan. Moreover, in the near run, the fiscal deficit has a negative effect on GDP growth in Pakistan. Similarly, the national debt has a negative effect on GDP growth in Afghanistan. Therefore, this study concluded that the fiscal deficit harms GDP growth and does not support the Keynesian theory regarding the deficit in Pakistan and Afghanistan. Thus, this study endorsed that the government should increase the revenue to cover expenditures to eradicate or lessen the fiscal deficit and debt.

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Fiscal Deficit and its effects on economic growth

Cited by 5 publications

References 21 publications

On the fiscal deficit and economic growth in sub-Saharan Africa: A new evidence from system GMM

On the fiscal deficit and economic growth in sub-Saharan Africa: A new evidence from system GMM

Does Fiscal Deficit Cause Economic Growth? Evidence from Nepal

The impact of fiscal deficit on economic growth: empirical evidence from Pakistan and Afghanistan

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