Fiscal policy and economic performance munich personal repec. It is used along with the monetary policy which the central bank uses to influence money supply in a nation. Boskin is a regular columnist for the economists voice. The results provide empirical support to the notion that fiscal policy stability generates higher longrun growth. Pdf on dec 1, 2015, christian richter and others published fiscal policy and economic growth. Theory and evidence 293 policy options 301 annex 9a. Does the state of the business cycle matter for the e. Fiscal policy for growth and development further analysis and. The particular mix of policy measures, however, will depend on countryspecific conditions, capacities, and preferences. Fiscal policy refers to the use of government spending and tax policies to influence macroeconomic conditions, including aggregate demand, employment, inflation and economic growth.
Combining scores and weights yields an indicator for each instrument. The central bank tries to maintain price stability through controlling the level of money supply. Fiscal policy and economic growth in romania cosmin enache1 abstract. Modelling fiscal policy for stabilization and economic. He chaired the presidents council of economic advisers from 19891993. Top 7 roles of fiscal policy in a developing economy. 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. 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. The data were collected on annual scale from the period of 197980 to 2012.
Combining the budget constraint of the government and the equation. Wide range of literature is available on the important role of fiscal policy in fastening economic growth. The study involves comparative analysis of the impact of fiscal policy on economic growth. As is well known, public policy neoclassical growth models consign the role of fiscal policy to one of determining the level of output rather than the longrun growth rate kneller, et al. Reconciling fiscal consolidation with growth and equity boris cournede, antoine goujard, alvaro pina please cite this article as. 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.
Fiscal policy aims to stabilise economic growth, avoiding a boom and bust economic cycle. Change the interest rate and affecting the supply of money e. Sweden seemed able to merge an egalitarian society with robust economic performance. The two policies the government can employ to influence economic growth and inflation are monetary and fiscal policy. The chinese economy has continued to see stable growth on the whole, although the pace of increase in fixed asset investment has slowed recently. The analysis of the correlation between fiscal policy and economic growth represents an important and very debated topic in the theoretical and empirical literature. Another view is that government plays a central role in economic development by providing public goods and infrastructure. The effect of fiscal policies on the quality of growth independent. The impact of fiscal policy variables on output growth wp981.
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. Monetary policy refers to policies that affect interest rates and the money supply. 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. The economic record was one of stable growth, low unemployment and balanced financial development. Budget statement and economic policy of government, as part of our efforts to ensure budget credibility and transparency, as well as fiscal sustainability. What two policies can the government employ to influence. Fiscal policy for economic growth stanford university. One view of government fiscal policy is that it stifles dynamic economic growth through the distortionary effects of taxation and inefficient government spending. Selffinancing fiscal policy assume an economy in which output is well below its potential, cyclical. The impact of fiscal policy on economic growth the keep. 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. Pdf the correlation between fiscal policy and economic growth.
The positive impact of these policy tools on economic. This paper attempts to analyze the economic development and fiscal policy in indonesia. Orszag, senior fellows, the brookings institution, february 3, 2003. This paper decomposes public spending and revenues into various subcategories and estimates the impact of each of them on economic growth. Those billions can make a big difference to an industry, region, or segment. This fiscal policy aims at stab ilizing the economy shihab et al.
They also position the federal government to formulate and implement economic policy. I extend a wellknown model of fiscal policy volatility and output growth by including more general institutional processes. However, the scope of such a role may be limited by the. Fiscal policy is a governments decisions regarding spending and taxing. Combining these data sources allows bls to produce relatively precise. 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. Fiscal policy is the means by which a government adjusts its level of spending in order to monitor and influence a nations economy 3. Especially, it investigates whether wagner andor keynes laws of economic development apply in the country and what variables determine. In fact, governments often prefer monetary policy for stabilising 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, the growth associated with fiscal stimulus can improve fiscal sustainability. For romania, the present time brings forth new challenges the joining to the european union. Thus, fiscal policy aims at stabilizing the economy. The effect of fiscal policy on economic growth in nigeria. It means fiscal policy does not have a long run impact on economic growth. 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. Friedman professor of economics and hoover institution senior fellow, stanford university.
Results of regression analysis 308 notes 311 references and other resources 315 boxes 1. 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. As for the outlook, the chinese economy is likely to broadly follow a stable growth path as policy authorities conduct fiscal and monetary policy. Thus, monetary policy plays a stabilizing role in influencing economic growth through a number of channels. 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. Pdf fiscal policy and economic growth charles shaw. These channels include the macroeconomic for example, through the influence of the budget deficit on. Apr 20, 2015 this paper explores how fiscal policy can affect medium to longterm growth. 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. 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. 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.
Monetary policy rests on the relationship between the rates of interest in an economy, that is the price at which money can be borrowed, and the total supply of money. This note aims to provide policymakers with practical guidance on how fiscal policy instruments may be applied. It is also necessary to realize that the issue of the mutual interaction of fiscal policy and economic growth. This technique allows for developing a longterm macroeconomic relationship between fiscal policy and economic growth, using real percapita. Economic fluctuations and growth one view of government fiscal policy is that it stifles dynamic economic growth. Fiscal policy is the general name for the federal governments taxation and expenditure decisions and activities, particularly as they affect the economy. May 03, 2016 this study investigated the effect of fiscal policy on economic growth in nigeria. These channels include the macro economic for example, through the influence of the budget deficit on. An overview benedict clements, sanjeev gupta, and gabriela inchauste fiscal policy can foster growth and human development through a number of different channels. Fiscal policy has recently gained prominence, both in public debate and in governments policy agendas figure 1. The study deals with the impact of fiscal and monetary policies on economic growth in bangladesh.
But, contrary to the prevailing opinion, it happened. The study used fiscal data compiled according to a manual on government. The results provide some support for theoretical models of endogenous growth. Role of fiscal policy in economic development of under developed countries. Fiscal policy, endogenous growth, public capital, environmental pollution. 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. Monetary policy uses a variety of tools to control one or both of these, to influence outcomes like economic growth. Even so, government authorities could use fiscal policy to affect in an indirect manner the economic growth.
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. This study investigated the effect of fiscal policy on economic growth in nigeria. 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. Fiscal policy, stabilization, and growth publications inter. The fiscal policy measure equivalent to taxation generates revenue to the government. Predictions of growth models with fiscal policy neoclassical growth models imply that government policy can affect only the output level but not the growth. Hence this study investigates the role of fiscal policy on economic growth in sudan during the period 19962012. Combining personal income tax and social insurance. The fiscal policy variables considered in the study include government gross fixed. In general, empirical evidence on these relationships is not robust and remains inconclusive. If a government wants to stimulate growth in the economy, it will increase spending for goods and services. The study investigates the impact of fiscal policy on economic growth in nigeria for the period 19852018.
Ideally, the economy should grow between 2% and 3% a year. In bangladesh, export and import have significant impact on economic growth. An empirical trend analysis onyemaechi joseph onwe, ph. The objective of fiscal policy is to create healthy economic growth. Fiscal policy promotes growth through macro and structural tax and expenditure policies. Income taxes, public fiscal policy and economic growth econstor. It identifies the main channels through which fiscal policy can influence growth and distills practical lessons for policymakers. We employ historical data, recent crosssection data, and newly constructed public investment series. 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. Cournede, boris, antoine goujard and alvaro pina 2014, reconciling fiscal consolidation with growth and equity, oecd journal.
Fiscal policy can foster growth and human development through a number of different channels. Section 4 presents our data and econometric methodology, while section 5 comments on our results. 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. 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. The fiscal policy has to be achieved so as to support the nominal. Ogbole, amadi, and essi 2011 wrote on fiscal policy and its impact on economic growth in nigeria 19702006. A framework a simple framework may help to organize some of these issues. Fiscal policy involves the use of government spending and revenue raising taxation to impact a number of aspects of the economy.
A fourpoint fiscal policy blueprint for building thriving. Jan 23, 2015 project topic impact of fiscal policy on the economic growth of nigeria 19812012 1. Rebelo, fiscal policy and economic growth determinant. How fiscal policy and monetary policy affect the economy. The impact of fiscal and monetary policy on nigerian. Empirical evidence from eu countries nikos benos university of ioannina june 2009 abstract. In 2012 the debate on the size of the fiscal multipliers has become even more relevant, as the economic recovery was weaker than. The main objective is to analysis how various components of fiscal policy have contributed to the growth rate of the nigerian economy. The effects of monetary and fiscal policies on economic. Economic fluctuations and growth this paper describes the empirical regularities relating fiscal policy variables, the level of development and the rate of growth. In this study we test the correlation between fiscal policy and economic growth in romania, for the period 19902007. 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.
Another unusual aspect of the current environment is the fiscal position we are. Fiscal policy is often used in conjunction with monetary policy. 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. Fiscal policy and longterm growth international monetary fund. First, what are the development objectives to which fiscal policy should contribute figure 3. The impact of fiscal policy on economic activity over the business cycle evidence from a threshold var analysis1 1 introduction what are the e. The purpose of the paper is to examine the effect of fiscal policy variables on economic growth in south africa. Fiscal policy in an endogenous growth model with public capital and. The correlation pattern between the real growth rate of the. Monetary policy and economic policy scientific papers. The correlation between fiscal policy and economic growth. Thus, monetary policy plays a stabilizing role in influencing economic growth.
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