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Fiscal Deficit, National Saving and Sustainability of Economic Growth in Emerging Economies: A Dynamic GMM Panel Data Approach

  • Antonino Buscemi

    (University of Rome Tor-Vergata, Department of Economics and Law, Rome, Italy)

  • Alem Hagos Yallwe

    (University of Rome Tor-Vergata, Department of Economics and Law, Rome, Italy)

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    The neoclassical growth models argued that the movement to steady states; technology, exogenous rate of savings, population growth and technical progress stimulate higher growth levels (Solow, 1956). Contrary to the neoclassical argument, endogenous growth model argues that, in the theory of endogenous growth, government play a significant role in promoting accumulation of knowledge, research and development, public investment, human capital development, law and order can generate growth both in the short and long run. Moreover, they assumed technical progress as endogenous variable for growth (Barro, 1995). This study analyze the effects of fiscal deficit on sustainability of economic growth and provided new empirical evidence on the effects of fiscal deficit on saving and sustainability of economic growth based on the assumption of endogenous growth model. We estimated using the reduced form of GMM method for dynamic panels covers 1990-2009 for three emerging countries that includes China, India and South Africa.

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    Article provided by Econjournals in its journal International Journal of Economics and Financial Issues.

    Volume (Year): 2 (2012)
    Issue (Month): 2 ()
    Pages: 126-140

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    Handle: RePEc:eco:journ1:2012-02-3
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    1. B. Douglas Bernheim, 1987. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 263-316 National Bureau of Economic Research, Inc.
    2. Easterly, William & Rebelo, Sérgio, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," CEPR Discussion Papers 885, C.E.P.R. Discussion Papers.
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    7. Padovano, Fabio & Galli, Emma, 2001. "Tax Rates and Economic Growth in the OECD Countries (1950-1990)," Economic Inquiry, Western Economic Association International, vol. 39(1), pages 44-57, January.
    8. Fölster, Stefan & Henrekson, Magnus, 2000. "Growth Effects of Government Expenditure and Taxation in Rich Countries," SSE/EFI Working Paper Series in Economics and Finance 391, Stockholm School of Economics.
    9. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
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