Fiscal Policy and Long-Run Growth

Abstract

This paper discusses in a systematic and comprehensive way the existing literature on the relationship between the growth of countries' economies and various public finance instruments, such as tax policy, expenditure policy, and overall budgetary policy, from the perspectives of allocative efficiency, macroeconomic stability, and income distribution. It reviews both the conceptual linkages between each of the instruments and growth and the empirical evidence on such relationships. It broadly concludes that fiscal policy could play a fundamental role in affecting the long-run growth performance of countries.

Does public sector efficiency matter? Revisiting the relation between fiscal size and economic growth in a world sample

“…2 Our results imply that what really matters to growth is not government size per se, but the size-efficiency mix. They can also help to explain why the evidence on the growth effects of the overall fiscal size has so far been mixed (see e.g., Levine and Renelt 1992;Tanzi and Zee 1997;Gemmel and Kneller 2001;Mueller 2003). Essentially, our results suggest that 1 A simple and popular conceptual framework is provided by Barro's (1990) model, where there is a tradeoff between growth-promoting public goods and the distorting taxes required to finance them.…”

“…The variable govshare is closer to what Tanzi and Schuknecht (2000) refer to as a measure of "real government expenditure". 11 The tax revenue-to-GDP ratio is generally not preferred to fiscal spending measures, mainly because of tax evasion problems (see e.g., Tanzi and Zee 1997). The same can be said about the budget-to-GDP ratio since it includes tax revenue.…”

“…This is probably because tax revenues, as an ex post measure, is not an ideal proxy for the distortions imposed by the tax system; higher tax revenue may e.g. reflect less tax evasion and better institutions (see Tanzi and Zee 1997;). Thus, the basic size-efficiency specification in Table 1 appears to be good enough to capture the tradeoffs in fiscal policy at least in our sample.…”

“…Ideally, we would like to have a measure of general government spending for all types of government expenditure, but unfortunately, such a measure does not, as far as we know, exist for all the countries and time periods in our world sample. Finally, the fiscal size of government can be also measured by tax revenue or the budget balance, both as shares of GDP (see e.g., Tanzi and Zee 1997;Persson and Tabellini 2003); see below in Sect. 3.4 for details.…”

State Receivables - Destructive Factor of the Czech Republic Fiscal Policy

“…Lucas (1988) a Barro (1990) otevřeli dveře bohaté literatuře o endogenní růstové teorii a odpovídajícím pokusu rozvinout naše porozumění implikací do fi skální politiky. Tanzi a Zee (1997) poskytli relativně raný pohled na výsledky v literatuře o fi skální politice a vytvořili závěry navzdory nedostatku robustních empirických výsledků, endogenní růstová teorie poskytla základ pro důvěru, že fi skální politika může ovlivnit dlouhodobý růstový výkon zemí.…”