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Expenditure-Growth Nexus: Does the Source of Finance Matter? Empirical Evidence from Selected South Asian Countries

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Author Info

  • Muhammad Iftikhar ul Husnain

    (, Federal Urdu University of Arts, Science and Technology (FUUAST), Islamabad)

Abstract

The study employs the Fixed Effect Model on a panel of four South Asian countries viz., Pakistan, India, Sri Lanka, and Nepal, for the period 1975–2008 to investigate if the source of finance matters in determining the impact of public expenditure on growth. The analysis shows that the source of finance does matter. Seigniorage-financed public expenditure has a larger negative effect on growth, followed by debt-financed and tax-financed public expenditure. Therefore, financing of public expenditure through taxes is the least costly option available with the governments in low-income countries. In general, fiscal discipline through cuts in public spending is required to boost economic growth

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Bibliographic Info

Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 49 (2010)
Issue (Month): 4 ()
Pages: 631–640

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Handle: RePEc:pid:journl:v:49:y:2010:i:4:p:631-640

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Related research

Keywords: Public Expenditure; Debt Financed; Tax Financed; Seigniorage; Economic Growth;

References

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  1. Rehana Siddiqui & Afia Malik, 2001. "Debt and Economic Growth in South Asia," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(4), pages 677-688.
  2. Theodore Palivos & Chong K. Yip, 1994. "Government expenditure financing in an endogenous growth model: a comparison," Working Paper 94-1, Federal Reserve Bank of Atlanta.
  3. Marco Espinosa & Chong K. Yip, 1998. "Fiscal and Monetary Policy Interactions in an Endogenous Growth Model with Financial Intermediaries," Departmental Working Papers _094, Chinese University of Hong Kong, Department of Economics.
  4. N Bose & J A Holman & K C Neanidis, 2005. "The Optimal Public Expenditure Financing Policy: Does the Level of Economic Development Matter?," Centre for Growth and Business Cycle Research Discussion Paper Series 57, Economics, The Univeristy of Manchester.
  5. Drazen, Allan, 1985. "A general measure of inflation tax revenues," Economics Letters, Elsevier, vol. 17(4), pages 327-330.
  6. Malcolm D. Knight & Delano Villanueva & Norman Loayza, 1992. "Testing the Neoclassical Theory of Economic Growth - A Panel Data Approach," IMF Working Papers 92/106, International Monetary Fund.
  7. Stpehen M. Miller & Frank S. Russek, 1993. "Fiscal Structures and Economic Growth: International Evidence," Macroeconomics 9309001, EconWPA, revised 23 Sep 1993.
  8. Fischer, Stanley, 1982. "Seigniorage and the Case for a National Money," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 295-313, April.
  9. Miguel D. Ramirez & Nader Nazmi, 2003. "Public Investment and Economic Growth in Latin America: an Empirical Test," Review of Development Economics, Wiley Blackwell, vol. 7(1), pages 115-126, February.
  10. Klein,Martin & Neumann,Manfred, . "Seignorage: What is it and who gets it?," Discussion Paper Serie B 124, University of Bonn, Germany.
  11. Habib Ahmed & Stephen M. Miller, 1999. "Crowding-Out and Crowding-In Effects of the Components of Government Expenditure," Working papers 1999-02, University of Connecticut, Department of Economics.
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