Measuring the time‐varying effects of fiscal policy on private saving in the process of financial integration

Abstract

This paper investigates the effects of fiscal policy, measured as the extent to which private saving is offset by public saving, in the process of international financial integration. Using extensive panel data for 87 countries over the period 1970–2010, we find that the dynamics for the saving offset are highly nonlinear and time‐varying. While the saving offset has gradually declined in line with rapid financial integration in advanced economies, it has remained broadly stable in less financially integrated emerging and developing economies. This implies that the negative wealth effects of fiscal policy in advanced economies have been smaller owing to higher financial integration, which could help governments reduce their debt burdens through the well‐anchored domestic interest rates at the world level.

Does financial inclusion induce poverty, income inequality, and financial stability: empirical evidence from the 54 African countries?

“…The other control variables in the models under study are inflation, GDP per capita, population growth, trade openness and financial integration. The relevant literature (Cho and Pyun, 2020;Erauskin and Turnovsky, 2019;Lane and Milesi-Ferretti, 2007) suggests FDI as percentage of GDP as a proxy to be used for financial integration. All these variables are based on their mean values from 2001 to 2019.…”