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The relationship between fiscal policy and economic growth in CEE countries

Author

Listed:
  • Sabina Hodžiæ

    (University of Rijeka, Faculty of Tourism and Hospitality Management, Primorska 42, 51410, Opatija, Croatia)

  • Amer Demiroviæ

    (Universiti Teknologi Brunei, School of Applied Sciences and Mathematics, Jalan Tungku Link, Gadong BE1410, Brunei Darussalam)

  • Emira Beèiæ

    (Statistical consultant at GOPA Consultants, 10090, Zagreb, Croatia)

Abstract

The relationship and effects between fiscal policy and economic growth have been an important theoretical and empirical research topic. The neoclassical models imply that the economic effects of changes in government spending will be neutralised by the impact of consequent changes in private spending. Endogenous growth models, on the other hand, imply that changes in the level and composition of taxation and government expenditure can affect economic growth. This aim of the paper is to explore the relationship and effects of fiscal policy and economic growth in 21 Central and Eastern European (CEE) countries over the period 2000-2018. The results, after controlling for various common and country-specific variables, imply that an increase in taxation, but not in non-productive expenditures, can positively affect economic growth. Our main findings are: (i) there is a significant and positive contemporaneous relationship between the general level of taxation and economic growth; and (ii) there is no relationship between the government final consumption and economic growth. Therefore, our results contributed to the scientific literature by providing empirical evidence on the contemporaneous relationship between the general government tax receipt and economic growth in CEE countries.

Suggested Citation

  • Sabina Hodžiæ & Amer Demiroviæ & Emira Beèiæ, 2020. "The relationship between fiscal policy and economic growth in CEE countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 653-666.
    • Handle: RePEc:rfe:zbefri:v:38:y:2020:i:2:p:656-666
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    References listed on IDEAS

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    More about this item

    Keywords

    fiscal policy; economic growth; panel data analysis; Central and Eastern European countries;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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