Advanced Search
MyIDEAS: Login

Fiscal composition and long-term growth

Contents:

Author Info

  • Afonso, António
  • Jalles, João Tovar

Abstract

We assess the fiscal composition-growth nexus, using a large country panel, accounting for the usually encountered econometric pitfalls. Our results show that revenues have no significant impact on growth whereas expenditures have negative effects. The same is true for the OECD with the addition that government revenue has a negative impact on growth. From our results, taxes on income are not growth enhancing, as well as public wages, interest payments, subsidies and government consumption. Spending on education and health boosts growth; and there is weak evidence supporting causality running from expenditures and revenues to output. JEL Classification: C23, E62, H50

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1518.pdf
Download Restriction: no

Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1518.

as in new window
Length:
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:ecb:ecbwps:20131518

Contact details of provider:
Postal: Postfach 16 03 19, Frankfurt am Main, Germany
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/home/html/index.en.html
More information through EDIRC

Order Information:
Postal: Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany
Email:

Related research

Keywords: budget decomposition; budget deficit; panel analysis; panel causality;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Keeley, Michael C, 1990. "Deposit Insurance, Risk, and Market Power in Banking," American Economic Review, American Economic Association, vol. 80(5), pages 1183-1200, December.
  2. Hakenes, Hendrik & Schnabel, Isabel, 2004. "Banks without Parachutes - Competitive Effects of Government Bail-out Policies," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 8, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Saint-Paul, Gilles, 1992. "Fiscal Policy in an Endogenous Growth Model," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1243-59, November.
  4. Honohan, Patrick & Klingebiel, Daniela, 2003. "The fiscal cost implications of an accommodating approach to banking crises," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1539-1560, August.
  5. Eberhardt, Markus & Teal, Francis, 2009. "Econometrics for Grumblers: A New Look at the Literature on Cross-Country Growth Empirics," MPRA Paper 15813, University Library of Munich, Germany.
  6. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, 07.
  7. Afonso, António & Furceri, Davide, 2008. "Government size, composition, volatility and economic growth," Working Paper Series 0849, European Central Bank.
  8. Douglas W. Diamond & Raghuram G. Rajan, 2000. "A Theory of Bank Capital," Journal of Finance, American Finance Association, vol. 55(6), pages 2431-2465, December.
  9. Eduardo Levy Yeyati & Tito Cordella, 1999. "Bank Bailouts: Moral Hazard vs. Value Effect," IMF Working Papers 99/106, International Monetary Fund.
  10. Ram, Rati, 1986. "Government Size and Economic Growth: A New Framework and Some Evidencefrom Cross-Section and Time-Series Data," American Economic Review, American Economic Association, vol. 76(1), pages 191-203, March.
  11. Charles A. E. Goodhart & Haizhou Huang, 1999. "A model of the lender of last resort," Proceedings, Federal Reserve Bank of San Francisco.
  12. Simon Kwan & Robert Eisenbeis, 1997. "Bank Risk, Capitalization, and Operating Efficiency," Journal of Financial Services Research, Springer, vol. 12(2), pages 117-131, October.
  13. Acharya, Viral V & Yorulmazer, Tanju, 2004. "Too Many to Fail - An Analysis of Time Inconsistency in Bank Closure Policies," CEPR Discussion Papers 4778, C.E.P.R. Discussion Papers.
  14. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank concentration, competition, and crises: First results," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1581-1603, May.
  15. Haizhou Huang & Charles Goodhart, 1999. "A Simple Model of an International Lender of Last Resort," FMG Discussion Papers dp336, Financial Markets Group.
  16. Andrea Sironi, 2000. "Testing for market discipline in the European banking industry: evidence from subordinated debt issues," Finance and Economics Discussion Series 2000-40, Board of Governors of the Federal Reserve System (U.S.).
  17. António Afonso & Christophe Rault, 2010. "What do we really know about fiscal sustainability in the EU? A panel data diagnostic," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(4), pages 731-755, January.
  18. Afonso, António & Furceri, Davide, 2008. "EMU enlargement, stabilization costs and insurance mechanisms," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 169-187, March.
  19. John Loizides & George Vamvoukas, 2005. "Government expenditure and economic growth: Evidence from trivariate causality testing," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 125-152, May.
  20. Markus Eberhardt & Christian Helmers & Hubert Strauss, . "Do Spillovers Matter When Estimating Private Returns to R&D?," Discussion Papers 11/22, University of Nottingham, GEP.
  21. Demirguc-Kunt, Asli & Detragiache, Enrica, 1999. "Does deposit insurance increase banking system stability ? An empirical investigation," Policy Research Working Paper Series 2247, The World Bank.
  22. Stephen Bond & Frank Windmeijer, 2005. "Reliable Inference For Gmm Estimators? Finite Sample Properties Of Alternative Test Procedures In Linear Panel Data Models," Econometric Reviews, Taylor & Francis Journals, vol. 24(1), pages 1-37.
  23. Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge.
  24. Vasilis Sarafidis & Tom Wansbeek, 2012. "Cross-Sectional Dependence in Panel Data Analysis," Econometric Reviews, Taylor & Francis Journals, vol. 31(5), pages 483-531, September.
  25. Reint Gropp & Hendrik Hakenes & Isabel Schnabel, 2010. "Competition, Risk-Shifting,and Public Bail-out Policies," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2010_05, Max Planck Institute for Research on Collective Goods.
  26. Beck, Thorsten & De Jonghe, Olivier & Schepens, Glenn, 2013. "Bank competition and stability: Cross-country heterogeneity," Journal of Financial Intermediation, Elsevier, vol. 22(2), pages 218-244.
  27. Nier, Erlend & Baumann, Ursel, 2006. "Market discipline, disclosure and moral hazard in banking," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 332-361, July.
  28. Grier, Kevin B. & Tullock, Gordon, 1989. "An empirical analysis of cross-national economic growth, 1951-1980," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 259-276, September.
  29. Lee, Jong-Wha, 1995. "Capital goods imports and long-run growth," Journal of Development Economics, Elsevier, vol. 48(1), pages 91-110, October.
  30. Beck, T.H.L. & Levine, R., 2002. "Industry growth and capital allocation: Does having a market- or bank-based system matter?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125514, Tilburg University.
  31. Afonso, António & González Alegre, Juan, 2008. "Economic growth and budgetary components: a panel assessment for the EU," Working Paper Series 0848, European Central Bank.
  32. Giovanni S.F. Bruno, 2004. "Approximating the Bias of the LSDV Estimator for Dynamic Unbalanced Panel Data Models," KITeS Working Papers 159, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Jul 2004.
  33. Landau, Daniel, 1986. "Government and Economic Growth in the Less Developed Countries: An Empirical Study for 1960-1980," Economic Development and Cultural Change, University of Chicago Press, vol. 35(1), pages 35-75, October.
  34. Jushan Bai, 2009. "Panel Data Models With Interactive Fixed Effects," Econometrica, Econometric Society, vol. 77(4), pages 1229-1279, 07.
  35. Kane, Edward J. & Klingebiel, Daniela, 2004. "Alternatives to blanket guarantees for containing a systemic crisis," Journal of Financial Stability, Elsevier, vol. 1(1), pages 31-63, September.
  36. Douglas W. Diamond & Raghuram G. Rajan, 1998. "Liquidity risk, liquidity creation and financial fragility: a theory of banking," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
  37. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  38. Yongfu Huang & Jonathan Temple, 2005. "Does external trade promote financial development?," Bristol Economics Discussion Papers 05/575, Department of Economics, University of Bristol, UK.
  39. Iannotta, Giuliano & Nocera, Giacomo & Sironi, Andrea, 2007. "Ownership structure, risk and performance in the European banking industry," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 2127-2149, July.
  40. Luc Laeven & Fabian Valencia, 2008. "The Use of Blanket Guarantees in Banking Crises," IMF Working Papers 08/250, International Monetary Fund.
  41. Coakley, Jerry & Fuertes, Ana-Maria & Smith, Ron, 2006. "Unobserved heterogeneity in panel time series models," Computational Statistics & Data Analysis, Elsevier, vol. 50(9), pages 2361-2380, May.
  42. David Roodman, 2007. "A Note on the Theme of Too Many Instruments," Working Papers 125, Center for Global Development.
  43. Laeven, Luc & Levine, Ross, 2009. "Bank governance, regulation and risk taking," Journal of Financial Economics, Elsevier, vol. 93(2), pages 259-275, August.
  44. Williams, Jonathan, 2004. "Determining management behaviour in European banking," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2427-2460, October.
  45. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 995-1025, November.
  46. Kumar, Saten, 2009. "Further Evidence on Public Spending and Economic Growth in East Asian Countries," MPRA Paper 19298, University Library of Munich, Germany.
  47. Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291.
  48. Xavier Freixas, 1999. "Optimal Bail Out Policy, Conditionality and Creative Ambiguity," FMG Discussion Papers dp327, Financial Markets Group.
  49. Reint Gropp & Jukka Vesala, 2002. "Deposit insurance, moral hazard, and market monitoring," Proceedings 823, Federal Reserve Bank of Chicago.
  50. António Afonso & Miguel St.Aubyn, 2008. "Macroeconomic Rates of Return of Public and Private Investment: Crowding-in and Crowding-out Effects," Working Papers Department of Economics 2008/06, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  51. Houston, Joel F. & Lin, Chen & Lin, Ping & Ma, Yue, 2010. "Creditor rights, information sharing, and bank risk taking," Journal of Financial Economics, Elsevier, vol. 96(3), pages 485-512, June.
  52. Koester, Reinhard B & Kormendi, Roger C, 1989. "Taxation, Aggregate Activity and Economic Growth: Cross-Country Evidence on Some Supply-Side Hypotheses," Economic Inquiry, Western Economic Association International, vol. 27(3), pages 367-86, July.
  53. Gropp, Reint & Vesala, Jukka & Vulpes, Giuseppe, 2002. "Equity and bond market signals as leading indicators of bank fragility," Working Paper Series 0150, European Central Bank.
  54. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  55. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 10/245, International Monetary Fund.
  56. Boyd, John H. & Runkle, David E., 1993. "Size and performance of banking firms : Testing the predictions of theory," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 47-67, February.
  57. Rodolphe Blavy, 2006. "Public Debt and Productivity: The Difficult Quest for Growth in Jamaica," IMF Working Papers 06/235, International Monetary Fund.
  58. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
  59. Kane, Edward J., 1986. "Appearance and reality in deposit insurance: The case for reform," Journal of Banking & Finance, Elsevier, vol. 10(2), pages 175-188, June.
  60. John H. Boyd & Gianni De Nicolã, 2005. "The Theory of Bank Risk Taking and Competition Revisited," Journal of Finance, American Finance Association, vol. 60(3), pages 1329-1343, 06.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20131518. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.