scholarly journals Analyzing Fiscal Balance Evolution for Developed and Emerging Countries

2016 ◽  
Vol 63 (3) ◽  
pp. 299-310
Author(s):  
Gheorghita Dinca ◽  
Marius Sorin Dinca ◽  
Catalina Popione
Keyword(s):  
Economic Growth ◽  
Fiscal Policy ◽  
Current Account ◽  
Public Debt ◽  
Current Account Balance ◽  
Time Interval ◽  
Independent Variables ◽  
Sustainable Fiscal Policy ◽  
Fiscal Balance ◽  
Sustainable Economic Growth

The purpose of our paper is to analyze the main factors which influence fiscal balance’s evolution and thereby identify solutions for configuring a sustainable fiscal policy. We have selected as independent variables some of the main macroeconomic measures, respectively public debt, unemployment rate, economy openness degree, population, consumer goods’ price index, current account balance, direct foreign investments and economic growth rate. Our research method uses two econometric models applied on a sample of 22 countries, respectively 14 developed and 8 emergent. The first model is a multiple regression and studies the connection between the fiscal balance and selected independent variables, whereas the second one uses first order differences and introduces economic freedom as a dummy variable to catch the dynamic influences of selected measures upon fiscal result. The time interval considered was 1999-2013. The results generated using the two models revealed that public debt, current account balance and economic growth significantly influence the fiscal balance. As a consequence, the governments need to plan and implement a fiscal policy which resonates with economy priorities and the phase of the economic cycle, as well as ensure a proper management of the public debt, stimulate sustainable economic growth and employment.

scholarly journals Public Debt, Economic Growth and Fiscal Balance: Alternative Measures of Sustainability in the Indian Context

2018 ◽  
Vol 21 (3) ◽  
pp. 780-799
Author(s):  
Joydeb Sasmal ◽  
Ritwik Sasmal
Keyword(s):  
Economic Growth ◽  
Fiscal Policy ◽  
Public Debt ◽  
Indian Context ◽  
Increase With Increase ◽  
Fiscal Balance ◽  
Short Run ◽  
The Government ◽  
Net National Product ◽  
The Impact

This article has examined the impact of public expenditure on economic growth and viability of fiscal policy when the deficit in budget is financed by public borrowing. A number of alternative criteria have been used as indicators of solvency in fiscal balance. The study is based on the theoretical framework and supported by the results of time series analysis in the Indian context. It is found that the share of revenue expenditure (RE) of the government has significantly increased over time and many of the components of RE are non-developmental in nature. The article argues that if growth suffers, it will put adverse impact on fiscal balance. The ratio of gross fiscal deficit (GFD) to net national product (NNP) and growth of NNP are co-integrated, and the ratio is found to increase with increase in NNP indicating deterioration in fiscal balance. The increase in total expenditure of the government has caused rise of the ratio of revenue deficit to total spending. Interest payment on public debt has led to the increase of the ratio of GFD to income. These results are indicators of non-viability of fiscal policy in India at least in the short run.

Re-examining public debt and current account dynamics: SVAR evidence from Ethiopia

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Wondemhunegn Ezezew Melesse
Keyword(s):  
Current Account ◽  
Public Debt ◽  
Public Investment ◽  
Government Debt ◽  
Current Account Balance ◽  
Investment Efficiency ◽  
Content Type ◽  
Current Account Dynamics ◽  
Fiscal Balance ◽  
Short Run

PurposePublic debt management is now an integral part of overall macroeconomic management in many developing and emerging market economies. Preventing unsustainable debt accumulation and maintaining healthy fiscal profile begins with understanding its key drivers both in the short and in the long run. The purpose of this paper is to analyze public debt and current account dynamics in Ethiopia.Design/methodology/approachThis study applies structural vector auto-regressive (SVAR) model on annual time series data to study general government debt and current account dynamics in Ethiopia for the period 1980–2018.FindingsBoth the impulse response and forecast error variance decomposition results confirm that fiscal balance exerts the strongest influence on both government debt and current account balance in the short run. In addition, own shock as well as shocks stemming from gross fixed capital formation and growth have significant effects on general government debt. The findings were robust to alternative data transformation, differing Choleski ordering of the model variables, and inclusion of exogenous deterministic terms that capture changes in the political landscape.Practical implicationsThe most important implication is that since fiscal balance is the strongest determinant of both public debt and current account balance, public investment efficiency is relevant here than anywhere else in the national economy. A recent study by Barhoumi et al. (2018) found that the sub-Saharan region lags behind its peers in terms of public sector investment efficiency with inefficiency gap of as large as 54% depending on the indicator variable for public investment output. Improving public investment spending efficiency would reduce government debt by enhancing productivity and growth – which has significant negative effect on public debt.Originality/valueFirst, the few studies conducted on Ethiopia are dominated by single equation specifications and do not account for the possibility of endogenous feedback effects among the model variables. Second, still equally important is the role of rising gross fixed capital formation in Ethiopia, which increased from about 13% (relative to GDP) in the 1980s to about 35% in the 2010s. Ignoring this variable amounts to a major model misspecification when analyzing short-run macro dynamics in low-income economies. Finally, the paper complements existing limited studies on Ethiopia by comparing the strength of shock propagation mechanisms using alternative data transformation techniques.

scholarly journals The Fiscal Policy of Bulgaria from the Standpoints of the Business Cycle and the Twin Deficits Hypothesis

2020 ◽  
Vol 6 (3) ◽  
pp. 256-269
Author(s):  
I. Todorov ◽  
◽  
K. Durova ◽  
Keyword(s):  
Fiscal Policy ◽  
Business Cycle ◽  
Current Account ◽  
Current Account Balance ◽  
Currency Board ◽  
Twin Deficits ◽  
State Budget ◽  
Fiscal Balance ◽  
The Business Cycle ◽  
The Current Account

Macroeconomic management of a small open economy in a currency board arrangement faces two serious problems: first, under a fixed exchange rate, fiscal policy is the only effective macroeconomic instrument for smoothing out the business cycle; second, the twin deficits phenomenon, if it exists, may jeopardize the stability of the currency board arrangement. This paper uses quarterly seasonally adjusted Eurostat data for the period of 1999–2019, the Hodrick–Prescott filter and a vector autoregression (VAR) to answer the three questions that are of utmost importance to Bulgarian policy-makers: first, is the discretionary fiscal policy of the Bulgarian government procyclical or countercyclical? Second, do the automatic stabilizers in the Bulgarian state budget function properly? Finally, is the twin deficits hypothesis valid for Bulgaria? Our findings imply that the fiscal discretion of the Bulgarian government is procyclical, while the automatic fiscal stabilizers do not work effectively. The first part of the twin deficits hypothesis (the causal link between the fiscal balance and the current account balance) is confirmed but the second part of the twin deficits hypothesis (the positive relationship between the fiscal balance and the current account balance) is rejected for Bulgaria. It may be inferred that both sides of the Bulgarian state budget (revenue and expenditure) need to be improved in order to increase the effectiveness of Bulgaria’s fiscal policy. Low budget deficits (not higher than 3% of GDP) are recommended for improving the current account balance and encouraging economic growth.

scholarly journals The Influence of Taxes on Inflows and Outflows of Foreign Direct Investment

2020 ◽  
Vol 6 (3) ◽  
pp. 244-255
Author(s):  
I. M. Drapkin ◽  
Keyword(s):  
Fiscal Policy ◽  
Current Account ◽  
Open Economy ◽  
Small Open Economy ◽  
Current Account Balance ◽  
Currency Board ◽  
Twin Deficits ◽  
State Budget ◽  
Fiscal Balance ◽  
The Current Account

Macroeconomic management of a small open economy in a currency board arrangement faces two serious problems: first, under a fixed exchange rate, fiscal policy is the only effective macroeconomic instrument for smoothing out the business cycle; second, the twin deficits phenomenon, if it exists, may jeopardize the stability of the currency board arrangement. This paper uses quarterly seasonally adjusted Eurostat data for the period of 1999–2019, the Hodrick–Prescott filter and a vector autoregression (VAR) to answer the three questions that are of utmost importance to Bulgarian policy-makers: first, is the discretionary fiscal policy of the Bulgarian government procyclical or countercyclical? Second, do the automatic stabilizers in the Bulgarian state budget function properly? Finally, is the twin deficits hypothesis valid for Bulgaria? Our findings imply that the fiscal discretion of the Bulgarian government is procyclical, while the automatic fiscal stabilizers do not work effectively. The first part of the twin deficits hypothesis (the causal link between the fiscal balance and the current account balance) is confirmed but the second part of the twin deficits hypothesis (the positive relationship between the fiscal balance and the current account balance) is rejected for Bulgaria. It may be inferred that both sides of the Bulgarian state budget (revenue and expenditure) need to be improved in order to increase the effectiveness of Bulgaria’s fiscal policy. Low budget deficits (not higher than 3% of GDP) are recommended for improving the current account balance and encouraging economic growth.

IMF Stabilization Programs, Policy Conduct and Macroeconomic Outcomes: A Case Study of Pakistan

2006 ◽  
Vol 11 (1) ◽  
pp. 35-62
Author(s):  
Nawaz A. Hakro ◽  
Wadho Waqar Ahmed
Keyword(s):  
Current Account ◽  
Inflation Rate ◽  
Current Account Balance ◽  
Macroeconomic Policies ◽  
Explanatory Variables ◽  
Fiscal Balance ◽  
Macroeconomic Impacts ◽  
The Individual ◽  
The Imf

This study is designed to assess the macroeconomic performance of fund-supported programs, and the sequencing and ordering of macroeconomic policies in the context of the Pakistan economy. The generalized evaluation estimator technique has been used to assess the macroeconomic impacts of the IMF supported programs. GDP growth, inflation rate, current account balance, fiscal balance and unemployment are used as the target variables in order to gauge economic performance during the program years. The vector of policy variables (that might have been adopted in the absence of programs) and the vector of foreign exogenous variables are also taken as explanatory variables in the model, so that the individual effect of the IMF supported programs could be assessed. The result suggests that as the IMF prescriptions were applied, the current account balance has worsened, the unemployment rate has significantly increased, and the inflation rate has increased during the years of fund-supported programs. Only the budget balance has shown signs of improvement. Furthermore an inadequate sequencing of reforms has contributed to the further worsening of the economic scenario during the program period.

What Explains Current Account Surplus in Korea?

2018 ◽  
Vol 17 (2) ◽  
pp. 70-93
Author(s):  
Chirok Han ◽  
Kwanho Shin
Keyword(s):  
Exchange Rate ◽  
Fiscal Policy ◽  
Current Account ◽  
Current Account Balance ◽  
Budget Deficits ◽  
Current Account Surplus ◽  
Short Run ◽  
The Right ◽  
The Impact ◽  
The Current Account

Since the currency crisis in 1998, Korea has experienced continuous current account surpluses. Recently, the current account surplus increased more rapidly—amounting to 7.7 percent of GDP in 2015. In this paper, we investigate the underlying reasons for the widening of Korea's current account surpluses. We find that the upward trend in Korea's current account surpluses is largely explained by its demographical changes. Other economic variables are only helpful when explaining short run fluctuations in current account balances. Moreover, we show that Korea's current account surplus is expected to disappear by 2042 as it becomes one of the most aged economies in the world. Demographic changes are so powerful that they explain, quite successfully, the current account balance trends of other economies with highly aged populations such as Japan, Germany, Italy, Finland, and Greece. When we add the real exchange rate as an additional explanatory variable, it is statistically significant with the right sign, but the magnitude explained by it is quite limited. For example, to reduce the current account surplus by 1 percentage point, a 12 percent depreciation is needed. If Korea's current exchange rate is undervalued 4 to 12 percent less than the level consistent with fundamentals, it is impossible to reduce Korea's current account surplus to a reasonable level by adjusting the exchange rate alone. Another way to reduce current account surplus is to expand fiscal policies. We find, however, that the impact of fiscal adjustments in reducing current account surplus is even more limited. According to our estimates, reducing the current account surplus by 1 percentage point requires an increase in budget deficits (as a ratio to GDP) of 5 to 6 percentage points. If we allow endogenous movements of exchange rate and fiscal policy, the impact of exchange rate adjustment increases by 1.6 times but that of fiscal policy decreases that it is no longer statistically significant.

Economic Policy

2019 ◽  
pp. 173-195
Author(s):  
William Keech ◽  
William Scarth
Keyword(s):  
United States ◽  
Economic Growth ◽  
Economic Policy ◽  
Fiscal Policy ◽  
Income Distribution ◽  
Political Institutions ◽  
Productivity Growth ◽  
The United States ◽  
Economic Policies ◽  
Sustainable Fiscal Policy

This chapter identifies the differing policies and outcomes that Canadians and Americans have pursued with respect to economic growth, stabilization, and income distribution, and it analyzes several factors that can partially explain why divergent policy choices have emerged. The United States (U.S.) has recorded better productivity growth, while Canada has achieved a more sustainable fiscal policy, a less fragile financial sector, and more generous distributional policies. These contrasting outcomes are related to differences in size and geography, in political culture, and in political institutions. The analysis also considers how much it may be possible for each country’s policymakers to benefit from the other’s experiences. While identifying some lessons in this regard, the authors conclude that the sheer difference in the size of the two economies affects which economic policies can be expected to be effective. As a result, it is concluded that convergence in economic policymaking will remain somewhat limited.

scholarly journals EFFECT OF EXTERNAL DEBT LIABILITY ON ECONOMIC GROWTH IN KENYA

2021 ◽  
Vol 6 (1) ◽  
pp. 23-42
Author(s):  
Joshua Matanda ◽  
Samuel Mbalu
Keyword(s):  
Economic Growth ◽  
Time Series ◽  
World Bank ◽  
Public Debt ◽  
External Debt ◽  
Debt Service ◽  
Series Data ◽  
National Bureau ◽  
Private Debt ◽  
Independent Variables

Purpose: The purpose of the study was to evaluate the effect of external debt liability on economic growth in Kenya. Materials and Methods: The descriptive research design was adopted. The target population was three institutions: The National Treasury, Kenya National Bureau of Statistics, and the World Bank. The study used time series data. The designated sample for this study covered a period of 43 years (1977–2019). Secondary data was used in this study. The data collected was on GDP of Kenya between 1977 and 2019, External public debt in terms of US dollars from 1977 to 2019, External private debt from 1977 and 2019 and external debt service payments from 1977 to 2019, all in US dollars. A data collection sheet was used to collect the data on the four variables. World Bank and World Development Indicator economic Meta data and published data by Central Bank of Kenya and the Kenya National Bureau of Statistics were the source of data for this study. The study used Eviews version 10 for analyzing and presenting study findings. The study employed multivariate time series and panel data regression analysis. The model employed GDP as a measure of economic growth and external public debt, external private debt, and external debt service payment as its main independent variables. Results:  The study found out that only the external private debt and the debt service payment showed bilateral causal relationship. External public debt and external private debt had a positive and significant effect on the GDP, indicating that external debt promotes economic growth in Kenya. The external debt service payment showed a negative and a significant effect on the GDP as well. The model explained 97% variability of the GDP as explained by the three independent variables combined. The 3% is attributed to other factors, not included in this study. Unique contribution to theory, practice and policy: The study recommends a more robust multivariate model to be employed to include more macro-economic variables to explain economic growth. A decade-to-decade comparison can also be done to compare the effects of the external debt on Kenyan economic growth in different time intervals. Fiscal and monetary policies should be reviewed to encourage more domestic and foreign investments and discourage external borrowing to fund budget deficits or projects with low or no returns.

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