Public revenue, fiscal deficit and economic growth: Evidence from Asian countries

This paper examines the impact of public revenue and fiscal deficit on economic growth in 20 Asian Countries. We use panel Autoregressive Distributed Lag Model (ARDL) to estimate both the short-run and long-run impact of the fiscal variables. The results indicate that fiscal deficit adversely affect growth both in short-run and long-run. In the long-run, deficit finance leads to debt accumulation which is also negatively associated with growth. However, panel ARDL results show that revenue is positively associated with growth in the long-run. In absence of fiscal deficit, public revenue influences positively on growth in the long-run. The impact of revenue in the short-run is not significant. The findings have important policy implication in fiscal sector reform. As the developing countries in Asia are more dependent on fiscal deficit, special care has to be taken in raising public revenue to ensure desirable results. The research suggests that in the case of Asian countries where revenue level is already low and deficit is persistent, raising revenue would reduce the debt level, contributing to higher growth.