Fiscal policy, expenditure composition, and growth in low-income countries

Gupta, Sanjeev; Clements, Benedict; Baldacci, Emanuele; Mulas‐Granados, Carlos

doi:10.1016/j.jimonfin.2005.01.004

Cited by 244 publications

(219 citation statements)

References 35 publications

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“…Two specifications are used following Gupta et al (2005)'s paper. In the first model (model A), the fiscal variables are revenue and expenditure level captured as a share of GDP.…”

Section: Econometric Methodsmentioning

confidence: 99%

“…Devarajan et al (1996) find opposite results.The composition of public outlays also matters in the growth process. For Gupta et al (2005), countries where spending is concentrated on wages tend to have lower growth, while those allocating higher shares to capital and nonwage goods and services enjoy faster output expansion. In the same line, Alesina and Perroti (1996) and Alesina and Ardagna (1998) find that budget composition matters in explaining different private sector responses to fiscal policy and hence the effects on growth.…”

Section: The Channelsmentioning

confidence: 99%

“…The data are annual and are obtained from African Development Indicators database. Due to the short sample period, we cannot follow the standard practice of taking 5 year averages to remove the effects of business cycle; but following Gupta et al (2005), business cycle may be weaker in low-income countries due to absence of automatic stabilizers. Moreover, Folster and Henrekson (1997) find that the pattern of the relationship is similar even though there is a change in the significativity level when annual data are used rather than three, five and ten years interval.…”

Section: Data and Sourcesmentioning

confidence: 99%

See 2 more Smart Citations

Fiscal Policy and Growth: An Empirical Evaluation in CFA Franc Zone

Ndjokou¹

2013

IBR

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This paper evaluates the link between fiscal policy and growth. For this purpose, we evaluate the influence of the level of public expenditures and revenues as well as the composition of the budget on economic growth. Relying on data provided by African Development Indicators, our sample is made of 9 countries of the CFA Franc Zone over the period 1990-2010. Focusing on panel data techniques, our analysis leads to the following results: (i) public expenditures reduce significantly growth; (ii) an increase in revenues is associated with positive GDP per capita growth even though the relation is not statistically significant; (iii) the composition of the budget matter on economic growth process especially indirect taxes (which enhance GDP per capita growth) and wages and salaries (which harmful growth).

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“…Two specifications are used following Gupta et al (2005)'s paper. In the first model (model A), the fiscal variables are revenue and expenditure level captured as a share of GDP.…”

Section: Econometric Methodsmentioning

confidence: 99%

Section: The Channelsmentioning

confidence: 99%

Section: Data and Sourcesmentioning

confidence: 99%

See 1 more Smart Citation

Fiscal Policy and Growth: An Empirical Evaluation in CFA Franc Zone

Ndjokou¹

2013

IBR

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“…A theory that gives support to the budgetary rule assuming that obtaining a balanced budget is considered as the only way to maintain a sustainable growth over time. Within the same framework, Gupta, Clements, Baldacci, Mulas-Granados (2005) found for a panel of 39 low-income countries during the period 1990 -2000 that a balanced budget stance generally leads to an increase in economic growth in both short and long terms. The study pointed out also the significant importance that holds the composition of public spending: when wages accounts for a big share of public expenditure, growth falls dramatically, while governments which concentrate their spending on capital and nonwage goods and services are more likely to experience a significant increase in growth.…”

Section: Empirical Studiesmentioning

confidence: 95%

Threshold effects of fiscal policy on economic growth in developing countries

Slimani

Idriss

Tounsi

2016

JEFS

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We examine the relation between fiscal policy and economic growth for a panel of 40 developing countries over the period of 1990 to 2012 using eight macroeconomic variables: real GDP, budget deficit, current government spending, national saving, inflation rate, total investment, public debt, and current account balance. The study documents a double threshold effect of the fiscal balance. The first one is at a level of the deficit around 4.8% of GDP; the second one is at the fiscal surplus level of 3.2% of GDP meaning that economic growth would be negatively affected when exceeding these two different levels. The result also show that the sign of the relation between budget deficit and economic growth is conditioned by the level of total investment i.e. only for total investment higher than 23%, there exists a positive relation. However, it becomes negative, when investment falls below this threshold. IntroductionIn both theory and evidence, there are controversial thoughts and debates that focus on the impact of the fiscal deficit on economic growth. Since the nineties, this subject becomes highly debated in the literature. Barro (1990) is considered as one of the most important pioneers in the field. He suggested a simple endogenous growth model and showed that the share of government spending in GDP might have a significant effect on economic growth. Nevertheless, a few empirical and theoretical studies have taken into account the non-linearity that can prevail on the relationship between growth and budget deficit [Minea and Villieu (2005), Adam and Bevan (2005), Tanimoune, Combes and Plane (2008) and Minea and Villieu (2008)]. These authors try to identify anti-Keynesian effects, which would be related to the persistence of high fiscal contractions.Euro convergence criteria in the Maastricht Treaty (1993) outlined that the ratio of the annual general government deficit about gross domestic product (GDP) at market prices, must not exceed 3% at the end of the preceding fiscal year. Even though it is hardly justified 1 . The European debt crisis in 2010 shook the global economy when some indebted countries in Euro area, which had been maintaining high levels of debt and fiscal deficit, faced the default on payment of the public debt and its interest. Although the crisis mainly pertained to European countries, the concern of a similar public debt crisis is also shared by other countries in the world. This paper provides an empirical analysis to identify the nature of the relationship between budget deficit and 1 It has been argued by many economists that the threshold of 3% was set arbitrarily and has no basis but the circumstances as European fiscal deficits in the early 90s were less than 3%. See Buiter, Corsetti and Roubini (1993, andBuiter (2006) for more details.Threshold effects of fiscal policy… Salma, et al. JEFS (2016), 04(03), 24-37Journal of Economic and Financial Studies Page 25 economic growth for a panel of 40 developing countries using annual data over the period spanning from 1990 to 2012.This p...

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“…The reason is that the economy that derives its income majorly from natural resources cannot sustain growth by substituting physical capital accumulation for deteriorating natural capital. Severe environmental degradation can affect a country's long term macroeconomic performance as noted by Gupta et al (2002), Gelb (1988. Similarly, Herbst (2000), Sala-i-martin and Subramania (2003) also states that it is exactly the high level of government revenues due to natural resources wealth that systematically induces bad economic policies and low level of productive public spending with adverse consequences for economic growth.…”

Section: Review Of Empirical Studiesmentioning

confidence: 99%

Econometric Analysis of the Effectiveness of Public Revenue in Economic Growth in Developing Countries: An Examination of Nigerian Economy

Jegede¹

2014

IJEF

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This paper focused on the econometric analysis of the effectiveness of public revenue in economic growth in developing countries: an examination of Nigeria between 1980-2008. The study set one hypothesis which includes public revenues does not impact on economic growth in Nigeria. The study utilized secondary data obtained from the central bank of Nigeria and Federal Ministry of Finance. The study specified a workable model in which Real Gross Domestic product is the dependent variable while aggregate oil revenue, non oil revenue and federal independent revenue were independent variables. Ordinary least square (OLS) method, T-test, and F-test were used as analytical techniques. The study revealed that public revenues were effective in promoting economic growth in Nigeria because the coefficient of determination (R 2 = 0.63 or 63%) was significant. The finding shows that oil revenues dominate public revenues in Nigeria and has caused volatility in other revenues such as non-oil and federal government independent revenue. The study therefore recommended that the federal government should revise its macroeconomic policies to improve efficiency and productivity of recourses allocation in the economy. Also, government should reexamine its non oil revenue by way of increasing tax rate and introducing new taxes in such a way that it does not distort the working of the economy.

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Fiscal policy, expenditure composition, and growth in low-income countries

Cited by 244 publications

References 35 publications

Fiscal Policy and Growth: An Empirical Evaluation in CFA Franc Zone

Fiscal Policy and Growth: An Empirical Evaluation in CFA Franc Zone

Threshold effects of fiscal policy on economic growth in developing countries

Econometric Analysis of the Effectiveness of Public Revenue in Economic Growth in Developing Countries: An Examination of Nigerian Economy

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