Keep inflation low the uk government has a target of 2% fiscal policy aims to stabilise economic growth, avoiding a boom and bust economic cycle. Further, fiscal policy should be able to inflate the economy through the productive allocation of government spending. Pdf this paper studies whether a reallocation of the components of public spending and revenues can enhance economic growth using data on 14 eu. Fiscal policy through variations in government expenditure and taxation profoundly affects national income, employment, output and prices. The standard keynesian view of fiscal policy implies that budgetary expansions foster economic growth in the short run. Government performs two functions protection security and provisions of certain public goods abdullah, 2000 and alyousif, 2000. Fiscal policy can play a significant role in economic growth. This study explores public finance policies in the transition countries of europe and central asia eca and their likely effects on economic growth.
The impact of fiscal policy on the nigeria economy project. 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. Monetary policy uses a variety of tools to control one or both of these, to influence outcomes like economic growth, inflation, exchange rates with other currencies and unemployment. Pdf fiscal policy and its relationship with economic. Effect of monetary and fiscal policy on nigerias economic growth. Ogbole, amadi, and essi 2011 wrote on fiscal policy and its impact on economic growth in nigeria 19702006. The fiscal policy reflects the state use of its economic programs, which includes revenues and expenditures in the best way. Economic growth and tax relief reconciliation act of 2001 it is an income tax cut that was enacted to stimulate the. Apart from its macroeconomic effects, fiscal policy can affect the rate of growth of aggregate output through many. Undisciplined governments may attempt to use frequent fiscal policy changes unrelated to the state of the economy, perhaps to smooth out business cycles or to boost demand in the economy for political reasons. Journal of quantitative economics 1 3 measuring simultaneous relationships this study uses a simultaneous equation model hereafter sem approach to explore both the direct and indirect effects of ff scal deff cit on economic growth in india. Pdf impact of fiscal policy on economic growth in nigeria. The extent to which fiscal policy engender economic growth has continued to attract empirical debate especially in developing countries and the fundamental problem is the representation of fiscal policy.
These channels include the macro economic for example, through the influence of the budget deficit on. Boskin t he american economy faces a set of immense, interrelated fiscal challenges. Top 8 objectives of fiscal policy economics discussion. We simply used descriptive statistics to show contribution of government fiscal policy to economic growth, and to ascertain and explain growth rates, and an ordinary least square ols in a multiple form to ascertain the relationship between economic growth and government expenditure components after ensuring data stationarity. The effect of fiscal policies on economic growth in general has been a subject of long debate, especially in respect of the shortrun effects.
But with the passage of time, the importance of fiscal policy has been increasing continuously for attaining rapid economic growth. Empirical evidence from eu countries nikos benos university of ioannina june 2009 abstract. Finally, section 4 provides conclusions and directions for future research. By a variation in government spending or taxation, fiscal policy aims at altering aggregate demand in order to move the economy closer to potential output. Hypothesis the fiscal policy of india has influenced the economic growth of the country. The aftermath of recent economic events, such as the 2007 north. This is done by directing the state economic plans to determine the. In addition, further result shows that monetary policy is more effective in nigeria than fiscal policy for the period under consideration. As such, there is need to impose fiscal discipline in the public finance since monetary policy cannot attain the desired goal. The sem makes it possible to identify several intermediate channels through which ff scal deff cit affects economic growth. When the government makes financial decisions, it has to consider the effect those decisions will have on businesses, consumers, foreign markets and other interested entities. Illinois economic and fiscal policy report the governors office of management and budget gomb, pursuant to 20 ilcs 30057.
Jones january 7, 2002 this collection of references is, by its nature, incomplete and always growing. F iscal policy is the use of government spending and taxation to in. However, these authors also find different degrees of effectiveness of fiscal policy in the short run and long run in influencing aggregate demand and output in developing countries. Impact of fiscal policy on economic growth in pakistan. Create free account to access unlimited books, fast download and ads free. Socioeconomic development and fiscal policy european central. This paper analyses the impact of different instruments of fiscal policy on economic growth as well as on income inequality, using an unbalanced panel of 43. The main points of these sections are summarized below. In recent years, inequality has risen in the region alongside rapid economic growth. Fiscal policy has recently gained prominence, both in public debate and in governments policy agendas figure 1. The purpose of this paper is to investigate the effects of fiscal policy on economic growth under contributions from the differences in institutions and external debt levels. Fiscal policy for inclusive growth asian development bank. And to do so, the government needs to collect taxes from businesses and individuals of. Fiscal policy consist of two sets of actions, first is discretionary action in which government sets.
This paper surveys the literature on fiscal policy and economic growth. Pdf macroeconomics fiscal policy and economic growth. Traditionally, fiscal policy in concerned with the determination of state income and expenditure policy. Economic effects congressional research service 1 he federal government has two major tools for affecting the macroeconomy in this case, the whole, or aggregate, u. Empirical evidence from eu countries nikos benos university of ioannina september 2009 this paper studies whether a reallocation of the components of public spending and revenues can enhance economic growth using data on 14 eu countries during 19902006. In 2012 the debate on the size of the fiscal multipliers has become even more relevant, as the economic recovery was weaker than expected in most european countries and the euro area fell into recession for a second time. Protection function consists of the creation of rule of law and enforcement of property rights. 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 stability.
In the standard neoclassical growth model, the pace of growth in output over the longrun is determined by growth in labor supply, accumulation of physical and human capital, and technological. The fiscal policy variables considered in the study include government gross fixed. What are the effects of fiscal policy on economic growth. The effectiveness of fiscal policy is an interesting field in literature of macroeconomics. We present a unifying framework for the analysis of long run growth implications of government expenditures and revenues. Ogbole, amadi and essi 2011 wrote on fiscal policy. This paper decomposes public spending and revenues into various subcategories and estimates the impact of each of them on economic growth.
The impact of fiscal policy variables on output growth wp981. The impact of fiscal policy on economic growth depending on institutional conditions. The purpose of the paper is to examine the effectiveness of fiscal policy instruments in zimbabwe on economic growth as the major target variable in the period 19802010. Literature reveals that there are different opinions as to what coefficient best captures fiscal stance. Similarly, the indirect effects of ff scal deff cit on economic growth and their justiff cations in an sem framework are formulated as follows. Fiscal policy and growth in developing asia asian development. Used properly, fiscal policy can determine the broad direction the economy of a given country is going to take. The results provide some support for theoretical models of endogenous growth. Fiscal policy may boost real gdp growth and therefore, in a low growth environment, governments may be tempted to try to stimulate. Fiscal policy is often used in conjunction with monetary policy. It is at the heart of the policy debate surrounding the sharp increases in official federal budget. Thus, fiscal policy aims at stabilizing the economy.
Yet, the role of fiscal policy in stimulating growth is poorly understood. The purpose of the paper is to examine the effect of fiscal policy variables on economic growth in south africa. Fiscal policy is prepared to ensure the economic growth of a country. Fiscal policy and economic growthan empirical investigation. International research journal of finance and economics issue 154 2016 36 19 macek, r. The impact of fiscal policy on economic growth the keep eastern. Download full macroeconomics fiscal policy and economic growth book or read online anytime anywhere, available in pdf, epub and kindle. Impact of fiscal policy on nigeria economic growth 1981. Econometric analysis of time series data from central bank of nigeria was conducted. Shortrun policies affect the options available for the longerterm. Economic and fiscal policy report fy20 master final. This paper describes the empirical regularities relating fiscal policy variables, the level of. 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.
The widening income gap strengthens the case for a government response. Theoretically fiscal policy can be employed to affect inflation, collective demand aggregate demand, and level of economic activity, allocation and distribution of resources and to avoid economic depression. This is done by directing the state economic plans to determine the sources of income and how to spend them, and what are the most important spending trends such as wages of government employees and various service projects, to. Economic effects federation of american scientists. Fiscal consolidation has been one of the main themes in the economic policy debate in europe since the onset of the financial and sovereign debt crises. Relative impact of monetary and fiscal policy on output. Zimbabwe has given fiscal policy the biggest role in economic stimulus given the multicurrency regime which has limited the role of monetary policy. Several studies emphasising shortrun fiscal policy effects, with references to industrialised countries, have been devoted to understanding of the. Pdf fiscal policy and its relationship with economic growth. By extending the generalized cobbdouglas production function, 2 the direct effect of a ff scal deff cit on economic growth is estimated through the following eq. Generally, fiscal policy is the economic policy done by the government in terms of controlling the budget, which covers government revenue and expenditure in order to get an optimum economic growth and to stabilize the economy in a whole. The study involves comparative analysis of the impact of fiscal policy on economic growth in nigeria during regulation and deregulation periods. First, government spending on public goods is strongly associated with faster economic growth as well as with greater poverty reduction.
A reassessment of fiscal policy is taking place, stressing its greater role in fostering sustainable and inclusive growth and smoothing the economic cycle. We find that several tax rates and expenditure categories exhibit a direct impact on the growth rate of the economy. It is useful to discuss them over three closely interrelated time frames. The impact of fiscal policy on economic activity over the. Increasing government spending tends to encourage economic. O to examine the impact of fiscal policy on economic growth. These policy interventions are generally used to either increase or decrease economic activity to counter. Essay on fiscal policy of india economics discussion. Pdf empirical analysis of the potency of fiscal policy. The government of a country takes responsibility for the wellbeing of the countrymen. Pdf this study investigates the effectiveness of fiscal policy and its impact on macroeconomic activities in pakistan during the period 19722008. 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 is the means by which a government adjusts its levels of spending in order to monitor and influence a nations economy. The dependent variable in question is the standard deviation of the annual growth rate. It is also necessary to realize that the issue of the mutual interaction of fiscal policy and economic growth belongs among important topics. Pdf fiscal policy and economic growth in south africa. Fiscal and monetary policy and its effect on the growth of nigeria economy a. Stimulate economic growth in a period of a recession. Pdf impact of fiscal policy variables on economic growth. Fiscal policy volatility is defined as the standard deviation of the residuals from countryspecific regressions of government consumption on real output. Fiscal policy and economic growth zagler 2003 journal.
The role of fiscal policy for economic growth relates to the stabilization of the rate of growth of an advanced country. The effect of fiscal policies on the quality of growth independent. Fiscal policy and economic growth wiley online library. Budget statement and economic policy of government, as part of our efforts to ensure budget credibility and transparency, as well as fiscal sustainability. The results provide support for endogenous growth models. Economic growth is one of the most important determinants of economic welfare. 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. Pdf fiscal policy and economic growth charles shaw.
Click get books and find your favorite books in the online library. Dec 04, 2020 the purpose of the paper is to examine the effect of fiscal policy variables on economic growth in south africa. Using a common methodology to evaluate the effects of fiscal policy on growth, country studies show a significant increase in average growth during the 10 years following fiscal reform episodes. 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. An empirical investigation, journal of monetary economics, elsevier, vol.
More specifically, rademacher 2011 argued that fiscal policy influences economic growth through its impact on the technical know. Introductionin recent years, fiscal policy tends to be important in supporting economic growth in asian countries. Thats why every spending of the government should be in the right order. The fiscal policy measure equivalent to taxation generates revenue to the government. The central objective of this paper is to take a closer look at the role of fiscal policy in developing asias economic growth. Fiscal policy is playing an important role on the economic and social front of a country. The relationship between fiscal policy and economic growth has continued to generate series of debate among scholars.
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