Fiscal Policy and Economic Growth

Zagler, Martin; Dürnecker, Georg

doi:10.1111/1467-6419.00199

Cited by 150 publications

(102 citation statements)

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“…On the other hand, the positive effect of government investment on GDP growth endorses the recent theoretical studies on fiscal policy and economic growth, e.g. see (Zagler and Dürnecker 2003). It raises an importance issue of how policy makers should balance the goals of reducing unemployment and enhancing aggregate efficiency in investment and capital utilization.…”

Section: Discussionmentioning

confidence: 56%

How much does investment drive economic growth in China?

Qin

Cagas

Quising

et al. 2006

Journal of Policy Modeling

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Investment-driven growth has long been regarded as a key development strategy in China. This paper investigates empirically the validity of this view. Post-1990 data analyses and macroeconometric model simulations show that market demand has become a regular force in driving investment since reforms, that non-demand-driven investment growth contributes to increasing capital-output ratio far more than output growth, that government investment exerts a pivotal role in amplifying investment cycles, albeit effective in promoting employment, and that delayed and rising consumption from current investment surge can help sustain the impact of growth even with constant-returns-to-scale in the long-run GDP.Key words: Investment, growth, impulse response function, cointegration, Granger non-causality JEL classifications: E22, E62, R34, O23, P41 * Contacting author; email: d.qin@qmul.ac.uk . 1By three methods we may learn wisdom: first, by reflection, which is noblest; second, imitation, which is easiest; and third by experience, which is the bitterest. Confucius I. Another East Asian 'Miracle'?The spectacular growth of China over the last two decades apparently adds significant force to the East Asian 'Miracle'. 1 During the period 1990 -2003, China's growth has been averaging 9.3% in terms of GDP per annum while the accompanying rate in gross fixed capital formation (GFCF) is 14% and the rate of the total investment in fixed assets (TIFA) is 15%. 2 Today, GFCF accounts for over 40% of nominal GDP, as compared to less than 30% in the early 1980s, see Table 1.1. These records have definitely outperformed those of Japan and the US and many other Newly Industrialized Asian Economies (NIAEs), see In 2004, the startling acceleration of the TIFA -43.2% growth in the 1 st quarter and 33.3% in the 2 nd quarter 3 before settling down to 27.6% for the full year -has led the Chinese government to curtail fixed assets investment out of the grave concern that the rising investment would overheat the economy. The rapid investment expansion has caused severe shortage in energy and raw material supplies, pushed imports to grow faster than exports, and accelerated inflation. The investment price index rose to 5.6% and the 1 The East Asian 'Miracle' refers to the myth that the engine driving economic growth is essentially capital accumulation instead of total factor productivity growth, see e.g. (Young 1995) and (Senhadji 2000). 2 The TIFA is more often used than the GFCF in China, as it is published monthly and more timely than GFCF. Both GFCF and TIFA are deflated by the price index of fixed assets from the China Statistical Yearbook 2004 for the period [1991][1992][1993][1994][1995][1996][1997][1998][1999][2000][2001][2002][2003]. The price index of raw materials and energy is used for 1990 as the price index of fixed assets is unavailable that year. 3 All the statistics quoted are y-o-y rates. The view that the Chinese economy is an investment-driven economy is a legacy from the old regime of a centrally planned economy (CP...

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Section: Discussionmentioning

confidence: 56%

How much does investment drive economic growth in China?

Qin

Cagas

Quising

et al. 2006

Journal of Policy Modeling

View full text Add to dashboard Cite

show abstract

“…There is argument that many empirical studies have confirmed that the primary explanation of inter-country differences in economic growth is the share of gross national product (GNP) devoted to investment; and that despite the increasing integration of the world capital markets, the rates of investment in the major industrial countries especially, are closely related to their rates of saving (Feldstein & Bacchetta, 1991;Feldstein, 1995). Intuitively, if investment has positive impact on income and hence government revenue, then saving has the same positive influence, particularly if saving enhances investment (Baghestani & McNown, 1994;Zagler & Durnecker, 2003;Baghestani & McNown, 1994;Carneiro et al, 2005). This is indirect way saving can affect revenue but the other way is direct if there are taxes levied on savings, including contribution of financial institutions to government revenue.…”

Section: Implications Of Growth Saving and Investment On Tax Revenuementioning

confidence: 83%

Fiscal Dividend from Saving, Investment and Per Capita Income Growth in Sub-Saharan Africa: Panel Data Analysis

Aikaeli¹

2014

IJEF

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Most of sub-Saharan Africa countries (SSA) have recorded impressive rates of growth and remained resilient to shocks especially during the recent past. Nevertheless, the status of social welfare has remained low as manifested by poor quality of standard of living and short longevity of life. In cognisance of the role of public sector to wellbeing through the fiscal arrangement, the objective of this study was to unearth the extent to which SSA have taken advantage of the achieved saving, investment and growth performance to enhance fiscal gains. Panel data analysis of 40 countries was done and results indicated that per capita income growth, total investment and gross national saving bolstered governments' revenue and thus reduced budget deficits in SSA, except in the global economic crisis during which, only saving yielded significant fiscal dividend in terms of cushioning the revenue. In view of this, enhancing national savings (both public and private) in SSA can appropriate surpassing return to fiscal stance.

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“…Zagler and Dürnecker (2003) surveyed the literature on fiscal policy and economic growth. They presented a unifying framework for the analysis of long run growth implications of government expenditures and revenues.…”

Section: Review Of Related Literaturementioning

confidence: 99%

The Effect of Fiscal Variables on Economic Growth in Asian Economies: A Dynamic Panel Data Analysis

Abdullah¹,

Habibullah²,

Baharumshah³

2009

IJBM

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This paper investigates the effect of relationship between fiscal variables and economic growth in Asian economies using a generalized method of moments (GMM) method as a dynamic panel data analysis over the 1985-2001 periods. These data contain a number of time invariant and time varying variables, where the time varying variables are averaged over four year It examines two different channels through which fiscal policy can affect long run economic growth in Asia. The first channel is when components and aggregate government expenditure affects the real per capita GDP and the second channel is when the components and aggregate of other fiscal variables affects the real per capita GDP. The dynamic panel data result especially GMM-SYS establishes a long run relationship between fiscal policy and economic growth. We find positive and statistically significant impact of health and education expenditure, aggregate of government expenditure and aggregate of other fiscal variables on real per capita GDP. Furthermore, we find that the defence expenditure, distortionary taxation and budget balance are significantly and negatively related to real per capita GDP.

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Fiscal Policy and Economic Growth

Cited by 150 publications

References 50 publications

How much does investment drive economic growth in China?

How much does investment drive economic growth in China?

Fiscal Dividend from Saving, Investment and Per Capita Income Growth in Sub-Saharan Africa: Panel Data Analysis

The Effect of Fiscal Variables on Economic Growth in Asian Economies: A Dynamic Panel Data Analysis

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