Abstract
Abstract. This paper examines the impact of public revenue and fiscal deficit on economic growth in 20 Asian Countries. We use panel Autoregressive Distributed Lag Model (ARDL) to estimate both the short-run and long-run impact of the fiscal variables. The results indicate that fiscal deficit adversely affect growth both in short-run and long-run. In the long-run, deficit finance leads to debt accumulation which is also negatively associated with growth. However, panel ARDL results show that revenue is positively associated with growth in the long-run. In absence of fiscal deficit, public revenue influences positively on growth in the long-run. The impact of revenue in the short-run is not significant. The findings have important policy implication in fiscal sector reform. As the developing countries in Asia are more dependent on fiscal deficit, special care has to be taken in raising public revenue to ensure desirable results. The research suggests that in the case of Asian countries where revenue level is already low and deficit is persistent, raising revenue would reduce the debt level, contributing to higher growth.
Keywords. Fiscal deficit; revenue; economic growth; investment; panel ARDL.
JEL. E60, H60, O40.References
Afonso, A. & Jalles, J.T. (2011). Economic performance and government size. European Central Bank, Working Paper, No.1399. [Retrieved from].
Amgain, J. (2017). Estimating optimal level of taxation for growth maximization in Asia. Applied Economics and Finance, 4(3), 47-55. doi. 10.11114/aef.v4i3.2288
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51. doi. 10.1016/0304-4076(94)01642-D
Arestis, P., & Sawyer, M. (2004). On fiscal policy and budget deficits. European Journal of Economics and Economic Policies: Intervention, 1(2), 61-74. doi. 10.4337/ejeep.2004.02.08
Aslam, A.L.M. (2016). Budget Deficit and Economic Growth in Sri Lanka: An Econometric Dynamic Analysis. World Scientific News, 46, 176-188.
Babu, J.O., Kiprop, S., Kalio, A.M., & Gisore, M. (2015). Effect of domestic debt on economic growth in the east African community. American Journal of Research Communication, 3(9), 73-95.
Barro, R.J. (1990). Government spending in a simple model of endogenous growth. Journal of Political Economy, 98(5), 103-125. doi. 10.1086/261726
Barro, R.J. (1991). Economic growth in a cross section of countries. Quarterly Journal of Economics 106(2), 407-441. doi. 10.2307/2937943
Barro, R.J. & Sala-i-Martin, X. (1992). Public finance in models of economic growth. The Review of Economic Studies, 59(4), 645-661. doi. 10.2307/2297991
Bräuninger, M. (2005). The budget deficit, public debt and endogenous growth. Journal of Public Economic Theory, 7(5), 827-840. doi. 10.1111/j.1467-9779.2005.00247.x
Briotti, M.G. (2005). Economic reactions to public finance consolidation: A survey of the literature. European Central Bank. Occasional Paper Series No.38. [Retrieved from].
Cole, A. (2016). The deficit, interest rates, and growth. Fiscal Fact, Tax Foundation. [Retrieved from].
Chudik, A., Mohaddes, K., Pesaran, M., & Raissi, M. (2013). Debt, inflation and growth robust estimation of long-run effects in dynamic panel data models. Federal Reserve Bank of Dallas, Globalization and Monetary Policy Institute, Working Paper, No.162. [Retrieved from].
Dickey, D.A., & Fuller, W.A. (1981). Distribution of the estimators for autoregressive time series with a unit root, Econometrica, 49(4), 1057-1072. doi. 10.2307/1912517
Elmendorf, D., & Mankiw, N.G. (1999). Government debt, in J.B. Taylor & M. Woodford (eds.), Handbook of Macroeconomics, Vol. 1C, Amsterdam, North- Holland.
Engen, E.M., & Skinner, J. (1992). Fiscal policy and economic growth. NBER, Working Paper, No.4223. doi. 10.3386/w4223
Eric, A.H. (2013). Economic growth in developing countries: The role of human capital. Economics of Education Review, 37, 204-212. doi. 10.1016/j.econedurev.2013.04.005
Fatima, G., Ahmed, M., & Rehman, W. (2012). Consequential effects of budget deficit on economic growth of Pakistan. International Journal of Business and Social Science, 3(7), 203-208.
Fernando, P., De Silva, H., Naranpanawa, A., & Gunasinghe, C. (2017). Revisiting the debt-growth nexus: Empirical evidence from Sri Lanka. Griffin Business School. Discussion Paper Series. [Retrieved from].
Gale, W., & Orszag, P. (2003). The economic effects of long-term fiscal discipline. Urban-Brookings Tax Policy Cante, Washington: Brookings Institution, Discussion Paper No.8. [Retrieved from].
Im, K.S., Pesaran, M.H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53-74. doi. 10.1016/S0304-4076(03)00092-7
Ishaq, T., & Mohsin, H.M. (2015). Deficits and inflation; Are monetary and financial institutions worthy to consider or not?. Borsa Istanbul Review 15(3), 180-191. doi. 10.1016/j.bir.2015.03.002
Keho, Y. (2010). Budget deficits and economic growth: Causality evidence and policy implications for WEAMU countries. European Journal of Economics, Finance and Administrative Sciences, 18, 99-104.
Kneller, R., Bleaney, M.F. & Gemmell, N. (1999). Fiscal policy and growth: Evidence from OECD countries. Journal of Public Economics, 74(2), 171-190. doi. 10.1016/S0047-2727(99)00022-5
Koczan, Z. (2015). Fiscal deficit and public debt in the Western Balkans: 15 years of economic transition. IMF Working Paper, No.172. [Retrieved from].
Kumar, M.S., & Woo, J. (2010). Public debt and growth., International Monetary Fund, Working Paper, No.10/174. [Retrieved from].
Levin, A., Lin, C.F., & Chu, C. (2002). Unit root tests in panel data: Asymptotic and finite sample properties. Journal of Econometrics, 108(1), 1-24. doi. 10.1016/S0304-4076(01)00098-7
Levine, R., & Renelt, D. (1992). A sensitivity analysis of cross-country growth regressions. American Economic Review, 82(4), 942-963.
Loayza, N., & Ranciere, R. (2005). Financial development, financial fragility and growth. IMF Working Paper, No. 05/170. [Retrieved from].
Nguyen, V.B. (2015). Effects of fiscal deficit and money M2 supply on inflation: Evidence from selected economies of Asia. Journal of Economics, Finance and Administrative Science, 20(38), 49-53. doi. 10.1016/j.jefas.2015.01.002
Pesaran, M.H., Shin, Y., & Smith, R.P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94(446), 621-634. doi. 10.2307/2670182
Pesaran, M.H., & Smith, R. (1995). Estimating long-run relationships from dynamic heterogeneous panels. Journal of Econometrics, 68(1), 79.113. doi. 10.1016/0304-4076(94)01644-F
Pesaran, M.H. (1997). The role of economic theory in modelling the long-run. Economic Journal, 107(440), 178-191.
Phillips, P.C.B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346. doi. 10.1093/biomet/75.2.335
Reinhart, C., & Rogoff, K. (2010). Growth in a time of debt, American Economic Review, 100(2), 573-578. doi. 10.1257/aer.100.2.573
Roubini, N., & Sachs, J. (1988). Political and economic determinants of budget deficits in the industrial democracies. NBER, Working Paper, No.2682. doi. 10.3386/w2682
Samargandi, N., Fidrmuc, J., & Ghosh, S. (2015). Is the relationship between financial development and economic growth monotonic? Evidence from a sample of middle-income countries. World Development, 68(C), 66-81. doi. 10.1016/j.worlddev.2014.11.010
Siddique, A., Selvanathan, E.A., & Selvanathan, S. (2015). The impact of external debt on economic growth: Empirical evidence from highly indebted poor countries. The University of West Australia. Discussion Paper, No.15.10. [Retrieved from].
Von, V.B., & Sudhipongpracha, T. (2015). Exploring government budget deficit and economic growth: Evidence from Vietnam’s economic miracle. Asian Affairs: An American Review, 42(3), 127-148. doi. 10.1080/00927678.2015.1048629
Westphal, C.C., & Phillip, R. (2011). The impact of government debt on growth: An empirical investigation for the Euro Area. Revue Economique, 62, 1015-1029. doi. 10.3917/reco.626.1015