An overview benedict clements, sanjeev gupta, and gabriela inchauste fiscal policy can foster growth and human development through a number of different channels. Expansionary fiscal policy is typically when the government spends more than it is receiving so there is a deficit. Fiscal policy and longterm growth international monetary fund. 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. Policy makers and researchers have long been interested in how potential changes to the personal income tax system affect the size of the overall economy. Fiscal policy promotes growth through macro and structural tax and expenditure.
This study sought to determine the effect of fiscal policy variables on the economic growth of subsaharan african countries. Skinner, 1992, fiscal policy and growth, national bureau of economic research working paper n. O to examine the impact of fiscal policy on economic growth. Fiscal policy can play a significant role in economic growth. Determine whether monetary and fiscal policy have a negative or positive effect on the economic growth of nigeria. The results provide support for endogenous growth models. Fiscal policy does not include all spending such as the increase in spending that. Fiscal policy for inclusive sustainable development. The rationale of this study is to examine the effect of fiscal policy variables on economic growth in nigeria. The potential for stabilization policy to limit the severity of economic fluctuations.
Expansionary fiscal policy can have either positive or negative impact to gdp growth. When an economy is experiencing growthexpandingemployment rates and. The empirical results suggest that indirect tax along. Fiscal policy, stabilization, and growth interamerican. Ideally, all children should have access to free, publicly financed, quality schools. Access to health care can provide financial protection and free up households from. Determine whether monetary and fiscal policy have a negative or positive effect on the economic. Relative impact of monetary and fiscal policy on output.
These channels include the macro economic for example, through the influence of the budget deficit on. Finally, section 4 provides conclusions and directions for future research. Fiscal and monetary policy and its effect on the growth of. Boskin t he american economy faces a set of immense, interrelated fiscal challenges. Introduction this article focuses on the study of the influence of fiscal policy on economic growth. Expansionary fiscal policy an increase in government spending, a decrease in. Pdf on mar 24, 2020, hillary chinemerem okafornta published impact of fiscal policy on economic growth in nigeria find, read and cite all the research you need on researchgate.
The central debate of this is regarding the impact of foreign aid on economic study growth. Pdf impact of fiscal policy on economic growth in nigeria. Oct 24, 2020 regarding the impact of fiscal adjustment on economic growth after the 2008 financial crisis, fatas and summers found that fiscal consolidation is self. Pdf the effect of fiscal policy and monetary policy on. At the heart of the debate are fiscal multipliers, whose size and sensitivity determine the power of such policies to influence economic growth. Fiscal policy is the term for how the government uses taxes and spending to. Pdf macroeconomics fiscal policy and economic growth. This paper surveys the theoretical and empirical literature on the relationship between taxation and public expenditure and economic growth. Fiscal policy and economic growth zagler 2003 journal. The broad objective of this study is to investigate effect of monetary and fiscal policy on the economic growth of nigeria. In studies of fiscal adjustment, particularly when it is a large adjustment, authors.
Pdf fiscal policy and economic growth charles shaw. The effect of fiscal policies on the quality of growth independent. We find that several tax rates and expenditure categories exhibit a direct impact on the growth rate of the economy. The aftermath of recent economic events, such as the 2007 north. Click get books and find your favorite books in the online library. 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. As a case study the author took into account three countries in the european union. Adbs vision is an asia and pacific region free of poverty.
A reassessment of fiscal policy is taking place, stressing its greater role in fostering sustainable and inclusive growth and smoothing the economic cycle. Pdf fiscal policy and its relationship with economic. Masters thesisresearch on fiscal policy and economic. Shortrun policies affect the options available for the longerterm. Restrictive fiscal policy indicates a surplus in the budget, when policies to slow economic growth are enacted. Abstract the debate on the effectiveness of fiscal policy as a tool for promoting growth and development remains inconclusive given the positions of economic theories as well as conflicting results of past studies. These policy interventions are generally used to either increase or decrease economic activity to counter. It is useful to discuss them over three closely interrelated time frames. Effect of monetary and fiscal policy on nigerias economic. Economic growth theory ii libo xu spring 2021 o utline i macroeconomics fiscal policy i macroeconomics monetary policy i.
In light of the above this paper aims to provide a framework for fiscal policy in stimulating economic growth, diversifying economies and reducing poverty and inequality. Used properly, fiscal policy can determine the broad direction the economy of a given country is going to take. The fiscal policy variables considered in the study include government gross fixed capital formation, tax, government expenditure, budget deficit as well as external debt. Thus, fiscal policy aims at stabilizing the economy. 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 on economic growth the keep eastern. More specifically, rademacher 2011 argued that fiscal policy influences economic growth through its impact on the technical know. Recent models of economic growth can generate longterm growth. Fiscal policy and growth in developing asia asian development.
Increasing government spending tends to encourage economic. Introductionin recent years, fiscal policy tends to be important in supporting economic growth in asian countries. Country studies confirm the potential of fiscal reforms to affect growth figure 1. Government spending or expenditure includes all government consumption, investment, and. The question about this instrument role in the support of the economic growth is highly discussed and gives place to a debate between the keynesian and their adversaries.
The crucial question is then whether increasing returns and free factor mobility in. We present a unifying framework for the analysis of long run growth implications of government expenditures and revenues. As such, there is need to impose fiscal discipline in the public finance since monetary policy cannot attain the desired goal. The fiscal policy reflects the state use of its economic programs, which includes revenues and expenditures in the best way. 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. To restore fiscal sustainability in the aftermath of the. Government spending can be a useful economic policy tool for governments. Benos 2009 investigated the relationship between fiscal policy and economic growth during a thirty 30 year period for fourteen 14 european countries, using panel data model. Covid19, economic growth and south african fiscal policy philippe burger, and estian calitz abstract following years of fastrising debt levels, we show that the covid19 crisis worsened an already deteriorating fiscal position in south africa. Download the impact of fiscal policy variables on output growth books now.
Pdf on mar 1, 2009, benedict clements and others published fiscal policy for economic development. Fiscal policy volatility is defined as the standard deviation of the residuals from countryspecific regressions of government consumption on real output. 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. Over the last decade, the growth impact of fiscal policy has generated large volume of both theoretical and empirical literature. The impact of fiscal policy on the nigeria economy project. In addition, further result shows that monetary policy is more effective in nigeria than fiscal policy for the period under consideration. Download the impact of fiscal policy on economic growth. Some researches show that expansionary fiscal policy can play an effective role in improving the economy.
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. Suppose that the economy tends to remain near full employment and that households do not. Unit roots of the time series were examined using the augmented dickey. 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. Coordination and distinction between monetary and fiscal policies. The role that fiscal rules should play in limiting fiscal policy actions. 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. The role of fiscal policy in the longrun growth process has been central in. 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. Pdf download free urban economics and fiscal policy library.
An overview find, read and cite all the research you need on researchgate. How the government size affects longterm economic growth 2. Create free account to access unlimited books, fast download and ads free. The question of the effectiveness of the fiscal policy as a key instrument of the economy has become more and more prominent worldwide in the scientific research. The practice of fiscal policy in lowinterestrate environment. Fiscal policy and economic growth in presence of foreign aid the sri lankan experience dodampe gamage gayan sri dayanath.
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. 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. Pdf fiscal policy and its relationship with economic growth. This is done by directing the state economic plans to determine the. Fiscal policy may boost real gdp growth and therefore, in a low growth environment, governments may be tempted to try to stimulate. Economic growth and tax relief reconciliation act of 2001 it is an income tax cut that was enacted to stimulate the.
Economic growth has long been considered an important goal of economic policy with a substantial body of research dedicated to explaining how this. The study concluded that government authorities could use fiscal policy to affect economic growth in an indirect manner. Chakraborty levy economics institute of bard college national institute of public finance and policy, new delhi swati khurana. An empirical analysis of g20 countries by horst hanusch university of augsburg lekha s. The results provide some support for theoretical models of endogenous growth. Examine effect of monetary and fiscal policy on the economic growth of nigeria b.
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. Download full macroeconomics fiscal policy and economic growth book or read online anytime anywhere, available in pdf, epub and kindle. The supplyside economics uses tax and benefit cuts as. Hypothesis the fiscal policy of india has influenced the economic growth of the country. 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. Literature reveals that there are different opinions as to what coefficient best captures fiscal stance. Essays on fiscal policy and economic growth scholarworks. Fiscal policy for economic development international monetary fund. Government spending in a simple model of endogeneous growth.
Using dynamic model and various econometric techniques, this study. 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. Stimulate economic growth in a period of a recession. This paper aims to examine the role of fiscal policy on economic growth applying the endogenous growth models for sri lankafrom 1960 to 2007. Pdf download free urban economics and fiscal policy. Pdf behavioral pattern of fiscal policy variables and.
Effects of income tax changes on economic growth brookings. The dependent variable in question is the standard deviation of the annual growth rate. Thus, fiscal policy tended to reinforce the business cycle the whenitrainsitpours syndrome. The purpose of this study was to investigate the effects of fiscal policy on private investment and economic growth in kenya, the study uses a time series data from 1973 to 2009, the choice of the. Download the impact of fiscal policy on economic growth book. Fiscal policy has recently gained prominence, both in public debate and in governments policy agendas figure 1. Fiscal policy after the financial crisis focuses on the effects of fiscal stimuli and increased government spending, with contributions that consider the measurement of the multiplier effect and its size. Country growth performance and temporary shocks, journal of monetary economics, this issue.
However, lower taxes will increase the governments fiscal deficit. In a similar study, adeoye, 2011 gave analyses of the impact of fiscal policy on economic growth in nigeria for the period of 19702002 where he made use of ordinary least square ols. Effect of monetary and fiscal policy on nigerias economic growth. Fiscal policy is often used in conjunction with monetary policy. In this work we tried to make a link between two stems of aid growth literature by. Fiscal policy can foster growth and human development through a number of different. Economic effects federation of american scientists. Principles of economics open textbook bc open textbooks. The study also examines the effectiveness of fiscal policy in different political regimes. This paper surveys the literature on fiscal policy and economic growth. Pdf fiscal policy and economic growth citlalit guzman. The growth and stabilization properties of fiscal policy.
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