Fiscal policy and structural transformation in developing economies

Abstract

Developing economies with high levels of open or hidden unemployment face structural transformation problems. Unlike in mature economies there are no structural aggregate demand problems, and sustained aggregate demand stimulus can lead to a pro…t squeeze in the modern sector and deindustrialization. Adaptations of 'functional …nance'to developing economies should aim to stabilize the level and composition of demand at values that are consistent with a target rate of growth of the modern sector. Populist temptations, however, may lead to deindustrialization.

The Linkage Between Fiscal Policy and Financial Development: Exploring the Moderating Role of Institutional Quality in Emerging Economies

“…Every government changes its expenditure levels in relation to its revenue collection through the use of fiscal policy, which aims to both monitor and have a favorable impact on the economy of the country (Zhongming et al, 2018). According to economic literature, fiscal policy is a crucial and significant tool for influencing a nation's overall demand (Skott, 2021). It is understood that variations in the levels, variations in timing, and variations in the makeup of government expenditure and taxation do have a big impact on how the economy is doing.…”

“…Fiscal policy is often used by governments to encourage robust, long-term growth and to lower poverty. During the recent global economic crisis, when governments intervened to stabilize financial institutions, spur growth, and lessen the crisis's effects on vulnerable individuals, the function and goals of fiscal policy rose to prominence (see Adelowokan, 2021;Skott, 2021) in influencing various macroeconomic indicators. The research includes the connection between fiscal policy and growth (Matallah & Matallah, 2017;Nabieu et al, 2021;Ubi-Abai & Ekere, 2018), the financial market (Akitoby & Stratmann, 2008;Dumičić, 2019;Marfatia et al, 2020;Tagkalakis, 2011), and the environment (Akbar et al, 2021;Kamal et al, 2021;Katircioglu & Katircioglu, 2018;Yuelan et al, 2019).…”

Economic Growth and Tax Components: An Analysis of Corporate Income Tax Incentives and Their Impact on the Economic Growth in Serbia

“…The author recommends that the government of Kenya should consider rationalizing tax incentives. Skott (2021) found that the growth rate also affects the debt ratio. In other words, the higher the growth rate, ceteris paribus, the lower the asymptomatic debt ratio.…”

Supermultipliers, ‘endogenous autonomous demand’ and functional finance

“…In dual economies, the main supply side constraint comes from the capital stock rather than the supply of labor, and full employment (in the modern sector) is not a feasible short‐run target. Policy makers have to define a growth target for the modern sector, weighing the benefits of fast accumulation against the cost of foregoing current consumption (Skott, 2021). Once a target for the growth rate has been defined, aggregate demand policy is left to steer the economy to—and then stabilize it at—a growth path with accumulation at the target rate and the utilization rate at the desired rate.…”