I extend a wellknown model of fiscal policy volatility and output growth by including more general institutional processes. Based on empirical experiments, they indicated directions for future empirical research that may enrich our knowledge on the complex relationship between fiscal policies and economic growth brons et al. Boskin is a regular columnist for the economists voice. Another view is that government plays a central role in economic development by providing public goods and infrastructure. Apr 20, 2015 this paper explores how fiscal policy can affect medium to longterm growth.
This paper attempts to analyze the economic development and fiscal policy in indonesia. An empirical trend analysis onyemaechi joseph onwe, ph. It is used along with the monetary policy which the central bank uses to influence money supply in a nation. For romania, the present time brings forth new challenges the joining to the european union. These channels include the macroeconomic for example, through the influence of the budget deficit on. The study involves comparative analysis of the impact of fiscal policy on economic growth. Fiscal policy and longterm growth international monetary fund. The correlation between fiscal policy and economic growth. The effect of fiscal policy on economic growth in nigeria. If the economy s longrun growth rate is g and the real government bor rowing rate is 5 this additional debt r, dd imposes on the government an annual financing burden in percentage points of a years. Economic fluctuations and growth one view of government fiscal policy is that it stifles dynamic economic growth. Income taxes, public fiscal policy and economic growth econstor. As noted by anyanwu 1993, the objective of fiscal policy is to promote economic conditions conducive to business growth while ensuring that any such government actions are consistent with economic.
Wide range of literature is available on the important role of fiscal policy in fastening economic growth. Especially, it investigates whether wagner andor keynes laws of economic development apply in the country and what variables determine. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. The role of fiscal policy automatic stabilizers and discretionary fiscal policy as economic activity fluctuates, fiscal expenditures and taxes respond automatically in ways that stabilize the economy. Friedman professor of economics and hoover institution senior fellow, stanford university.
Section 4 presents our data and econometric methodology, while section 5 comments on our results. The various tools of fiscal policy such as budget, taxation, public expenditure, public works and public debt can go a long way for maintaining full employment without inflationary and deflationary forces in underdeveloped economies. The study used fiscal data compiled according to a manual on government. It is also necessary to realize that the issue of the mutual interaction of fiscal policy and economic growth. These channels include the macro economic for example, through the influence of the budget deficit on. First, the growth associated with fiscal stimulus can improve fiscal sustainability. D school of management sciences national open university of nigeria abstract the role of fiscal policies in the development of emerging economies has been a major source of concern in economic. A reassessment of fiscal policy is taking place, stressing its greater role in fostering sustainable and inclusive growth and smoothing the economic.
In bangladesh, export and import have significant impact on economic growth. The results provide some support for theoretical models of endogenous growth. These channels include the macro economic for example, through the influence of the budget deficit on growth. Does the state of the business cycle matter for the e. Fiscal policy is the means by which a government adjusts its level of spending in order to monitor and influence a nations economy 3. Jan 23, 2015 project topic impact of fiscal policy on the economic growth of nigeria 19812012 1. Theory and evidence 293 policy options 301 annex 9a. Economic growth is one of the most impor tant determinants of economic welfare. Fiscal policy and economic performance munich personal repec. The connection between fiscal policy and economic growth is not a strong one, taking into account that fiscal policy is not a fundamental source of growth.
Fiscal policy is the use of government spending and taxation to influence the economy. As for the outlook, the chinese economy is likely to broadly follow a stable growth path as policy authorities conduct fiscal and monetary policy. Our aim in this paper is not to resolve the fiscal policy growth debate but rather to contribute to the literature by examining the effects of fiscal policy on growth in a small developing economy. Fiscal policy and economic growth in romania cosmin enache1 abstract. One view of government fiscal policy is that it stifles dynamic economic growth through the distortionary effects of taxation and inefficient government spending.
Empirical evidence from eu countries nikos benos university of ioannina june 2009 abstract. The effect of fiscal policies on the quality of growth independent. The impact of fiscal policy on economic activity over the. The central bank tries to maintain price stability through controlling the level of money supply. May 03, 2016 this study investigated the effect of fiscal policy on economic growth in nigeria. The impact of fiscal policy on economic activity over the business cycle evidence from a threshold var analysis1 1 introduction what are the e. Fiscal policy, stabilization, and growth publications inter. The purpose of the paper is to examine the effect of fiscal policy variables on economic growth in south africa. Budget statement and economic policy of government, as part of our efforts to ensure budget credibility and transparency, as well as fiscal sustainability. The study deals with the impact of fiscal and monetary policies on economic growth in bangladesh. Fiscal policy aims to stabilise economic growth, avoiding a boom and bust economic cycle.
Predictions of growth models with fiscal policy neoclassical growth models imply that government policy can affect only the output level but not the growth. Now the major research question has been on the conditions that improve the effectiveness of fiscal policy intervention on economic growth and recent years have seen a revival of the debate about the role of fiscal policy in stimulating economic activity. Fiscal policy is the general name for the federal governments taxation and expenditure decisions and activities, particularly as they affect the economy. This note aims to provide policymakers with practical guidance on how fiscal policy instruments may be applied. Fiscal policy for economic growth stanford university. This study uses secondary data which were obtained from the statistical bulletin of the central bank of nigeria cbn covering the period from 1985 to 2015. A simple framework the effect of fiscal policy on economic growth is a controversial and longstanding topic in economic theory, empirical research, and economic policy making. Fiscal policy in an endogenous growth model with public capital and.
It means fiscal policy does not have a long run impact on economic growth. Fiscal policy for growth and development further analysis and. This fiscal policy aims at stab ilizing the economy shihab et al. Fiscal policy is often used in conjunction with monetary policy. However, the scope of such a role may be limited by the. Yet, there are also significant arguments against fiscal rules that havent been central in the monetary policy context, including the difficulty of measuring fiscal policy.
What two policies can the government employ to influence. Orszag, senior fellows, the brookings institution, february 3, 2003. The analysis of the correlation between fiscal policy and economic growth represents an important and very debated topic in the theoretical and empirical literature. Fiscal policy economics project topics, essay, monetary base paper, top thesis list, dissertation, synopsis, abstract, report, source code, full pdf details for master of business administration mba, bba, phd diploma, mtech and msc college students for the year 2015 2016. Even so, government authorities could use fiscal policy to affect in an indirect manner the economic growth. Thus, monetary policy plays a stabilizing role in influencing economic growth.
Top 7 roles of fiscal policy in a developing economy. Sweden seemed able to merge an egalitarian society with robust economic performance. Fiscal policy is usually represented by the level and structure of government spending on the one hand and by the level of individual taxes, resp. Ogbole, amadi, and essi 2011 wrote on fiscal policy and its impact on economic growth in nigeria 19702006. Monetary policy uses a variety of tools to control one or both of these, to influence outcomes like economic growth. How fiscal policy and monetary policy affect the economy. The fiscal policy variables considered in the study include government gross fixed. Tightening of eligibility and maximum duration of unemployment benefit. The chinese economy has continued to see stable growth on the whole, although the pace of increase in fixed asset investment has slowed recently. If a government wants to stimulate growth in the economy, it will increase spending for goods and services. Reconciling fiscal consolidation with growth and equity boris cournede, antoine goujard, alvaro pina please cite this article as. May 03, 2004 one view of government fiscal policy is that it stifles dynamic economic growth through the distortionary effects of taxation and inefficient government spending. Economic fluctuations and growth this paper describes the empirical regularities relating fiscal policy variables, the level of development and the rate of growth. Change the interest rate and affecting the supply of money e.
The effects of monetary and fiscal policies on economic. Monetary policy refers to policies that affect interest rates and the money supply. In general, empirical evidence on these relationships is not robust and remains inconclusive. Pdf fiscal policy and economic growth charles shaw. Fiscal policy tries to nudge the economy in different ways through either expansionary or contractionary policy, which try to either increase economic growth through taxes and spending or. Although twothirds of the federal governments expenditures are mandatory and many of the discretionary expenditures are not all that discretionary, even a small portion of the federal budget represents billions of dollars. The two policies the government can employ to influence economic growth and inflation are monetary and fiscal policy. In 2012 the debate on the size of the fiscal multipliers has become even more relevant, as the economic recovery was weaker than. Those billions can make a big difference to an industry, region, or segment. In this study we test the correlation between fiscal policy and economic growth in romania, for the period 19902007. Pdf on dec 1, 2015, christian richter and others published fiscal policy and economic growth. An overview benedict clements, sanjeev gupta, and gabriela inchauste fiscal policy can foster growth and human development through a number of different channels. The objective of fiscal policy is to create healthy economic growth. At the brisbane summit, g20 leaders established raising global growth to deliver better living standards and quality jobs for people across the world as their highest priority.
Another unusual aspect of the current environment is the fiscal position we are. Fiscal policy is the means by which a government adjusts its levels of spending in order to monitor and influence a nations economy. Thus, fiscal policy aims at stabilizing the economy. Cournede, boris, antoine goujard and alvaro pina 2014, reconciling fiscal consolidation with growth and equity, oecd journal. This study investigated the effect of fiscal policy on economic growth in nigeria. Thus, monetary policy plays a stabilizing role in influencing economic growth through a number of channels. The results provide empirical support to the notion that fiscal policy stability generates higher longrun growth. The main objective is to analysis how various components of fiscal policy have contributed to the growth rate of the nigerian economy. This deepseeded belief that taxation, public investment, and other aspects of fiscal policy can contribute to growth miracles as well as to enduring stagnation has been articulated in the context of growth models during the past. Department of economic and social affairs desa commissioned a series of notes for policy makers and policy shapers both in the government and civil society, in major and interconnected areas relevant to the formulation of national development strategies. He chaired the presidents council of economic advisers from 19891993. Modelling fiscal policy for stabilization and economic. Fiscal policy has recently gained prominence, both in public debate and in governments policy agendas figure 1.
The fiscal policy has to be achieved so as to support the nominal. Ideally, the economy should grow between 2% and 3% a year. Combining personal income tax and social insurance. This deepseeded belief that taxation, public investment, and other aspects of fiscal policy can contribute to growth miracles as well as to enduring stagnation has been articulated in the context of growth.
The fiscal policy measure equivalent to taxation generates revenue to the government. Carmignani 5, in his study of the impact of fiscal policy on private consumption and social outcomes in europe and cis with the focus on transition countries, employs simultaneous equations modelling. Hence this study investigates the role of fiscal policy on economic growth in sudan during the period 19962012. They also position the federal government to formulate and implement economic policy. The impact of fiscal and monetary policy on nigerian. A fourpoint fiscal policy blueprint for building thriving. This paper decomposes public spending and revenues into various subcategories and estimates the impact of each of them on economic growth.
Fiscal policy, endogenous growth, public capital, environmental pollution. This study investigated the impact of fiscal and monetary policy on nigerian economic growth from 1981 to 2015, with the interest in exploring which of fiscal or monetary policy has been effective in propelling economic growth in nigeria and how gdp growth responds to the monetary and fiscal policy shock. We employ historical data, recent crosssection data, and newly constructed public investment series. The particular mix of policy measures, however, will depend on countryspecific conditions, capacities, and preferences. Combining these data sources allows bls to produce relatively precise. Fiscal policy is a governments decisions regarding spending and taxing. The study investigates the impact of fiscal policy on economic growth in nigeria for the period 19852018. A framework a simple framework may help to organize some of these issues. Combining the budget constraint of the government and the equation. It identifies the main channels through which fiscal policy can influence growth and distills practical lessons for policymakers. Rebelo, fiscal policy and economic growth determinant.
Combining scores and weights yields an indicator for each instrument. Fiscal policy promotes growth through macro and structural tax and expenditure policies. The correlation pattern between the real growth rate of the. The data were collected on annual scale from the period of 197980 to 2012. The positive impact of these policy tools on economic. The economic record was one of stable growth, low unemployment and balanced financial development. Fiscal policy can foster growth and human development through a number of different channels. Fiscal policy involves the use of government spending and revenue raising taxation to impact a number of aspects of the economy. This ambiguity of the connection between fiscal policy and economic growth is due, in the main part, to the fact that fiscal policy is not a fundamental source of economic growth. First, what are the development objectives to which fiscal policy should contribute figure 3. Role of fiscal policy in economic development of under developed countries.
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