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Growth effects of budgetary fiscal variables in a panel of middle-income countries

Author

Listed:
  • Sultan Hafeez Rahman

    (BRAC University)

  • Muhammad Shahadat Hossain Siddiquee

    (BRAC University
    University of Dhaka)

Abstract

This paper assesses the growth-enhancing and growth-retarding effects of different budgetary fiscal variables using a balanced panel of 32 middle-income countries for the time period of 2000–2017. Much of previous research requires to be re-evaluated as it ignores the biases associated with either incomplete or wrong specification, or both, of the budget constraint and the money supply. This paper addresses these gaps and obtains more unbiased, consistent and efficient estimates for the fiscal variables, using both static and dynamic panel econometric techniques. Specifically, this paper finds that (1) larger tax and non-tax revenues retard economic growth; (2) higher allocation to public capital expenditure appears to have positive and significant effect on growth; (3) fiscal deficit appears to have neutral-growth effects; and (4) controlling broad money supply corrects for biases in the orthogonal specification.

Suggested Citation

  • Sultan Hafeez Rahman & Muhammad Shahadat Hossain Siddiquee, 2024. "Growth effects of budgetary fiscal variables in a panel of middle-income countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 160(1), pages 145-168, February.
    • Handle: RePEc:spr:weltar:v:160:y:2024:i:1:d:10.1007_s10290-023-00494-5
    DOI: 10.1007/s10290-023-00494-5
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    Keywords

    Growth; Fiscal; Middle-income countries; Orthogonal; Structural;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • F68 - International Economics - - Economic Impacts of Globalization - - - Policy

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