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The Effect of Global Economic Policy Uncertainty on Public Spending: A Perspective on the External Debt and Shadow Economy

Author

Listed:
  • Canh Phuc Nguyen
  • Christophe Schinckus

    (University of Economics Ho Chi Minh City (UEH))

Abstract

This study examines the effects of global uncertainty and its associations with each country’s external debt and shadow economy on the government expenditures for a sample of 69 low and middle-income economies. Firstly, a higher external debt and a higher shadow economy reduce the ratio of government consumption to output. Secondly, an increase in the Global Economic Policy Uncertainty decreases government expenditures suggesting a negative effect of uncertainty on public spending in low and middle-income economies. Thirdly, the effect of the global EPU on public spending is weaker in countries with high external debt or shadow economy.

Suggested Citation

  • Canh Phuc Nguyen & Christophe Schinckus, 2022. "The Effect of Global Economic Policy Uncertainty on Public Spending: A Perspective on the External Debt and Shadow Economy," Review of Development Finance Journal, Chartered Institute of Development Finance, vol. 12(1), pages 16-30.
    • Handle: RePEc:afj:journ3:v:12:y:2022:i:1:p:16-30
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    File URL: https://journals.co.za/doi/abs/10.10520/ejc-rdfin_v12_n1_a2
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    More about this item

    Keywords

    Government consumption; Economic policy uncertainty; Shadow economy; External debt; Low and middle income;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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