IDEAS home Printed from https://ideas.repec.org/a/eco/journ1/2015-01-19.html

Does Fiscal Illusion Impact Budget Policy? A Panel Data Analysis

Author

Listed:
  • Tchouassi G rard

    (Department of Economics, Faculty of Economic and Management, University of Yaound II-Soa, Po Box 18 Soa- Yaound , Cameroon)

  • Ngwen Ngangu

    (Department of Economics, Faculty of Economic and Management, University of Yaound II-Soa, Po Box 18 Soa Yaound , Cameroon.)

Abstract

This study employs a panel data analysis to examine the relationship between fiscal illusion and budget policy of 15 African countries over the period between 1980 and 2012. The empirical results of the test of Hausman suggest the use of fixed effects estimators. But to check the robustness of the empirical results in different econometric specifications we have also conducted many regressions using alternative estimation methods (such as random effect and population averaged models). Empirical results obtained show a positive and significant association between fiscal illusion and public deficit. An increasing of 1 percent of fiscal freedom leads respectively to, ceteris paribus, an augmentation of 0.27, 0.24 and 0.3 percent of budget deficit in the fixed, random and population method. As a conclusion, fiscal illusion affects budget policy.

Suggested Citation

  • Tchouassi G rard & Ngwen Ngangu, 2015. "Does Fiscal Illusion Impact Budget Policy? A Panel Data Analysis," International Journal of Economics and Financial Issues, International Journal of Economics and Financial Issues, vol. 5(1), pages 240-248.
    • Handle: RePEc:eco:journ1:2015-01-19
    as

    Download full text from publisher

    File URL: http://www.econjournals.com/index.php/ijefi/article/view/1049/pdf
    Download Restriction: no
    File URL: http://www.econjournals.com/index.php/ijefi/article/download/1049/pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Barro, Robert J, 1989. "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 37-54, Spring.
    2. repec:hal:pseose:halshs-00944873 is not listed on IDEAS
    3. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    4. Alesina, Alberto & Perotti, Roberto, 1996. "Fiscal Discipline and the Budget Process," American Economic Review, American Economic Association, vol. 86(2), pages 401-407, May.
    5. Thomas Piketty & Emmanuel Saez & Stefanie Stantcheva, 2014. "Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 230-271, February.
    6. repec:wbk:wbpubs:14456 is not listed on IDEAS
    7. William Easterly, 1999. "When is fiscal adjustment an illusion?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 14(28), pages 56-86.
    8. West, E G, 1975. "Public Debt Burden and Cost Theory," Economic Inquiry, Western Economic Association International, vol. 13(2), pages 179-190, June.
    9. Lawrence Kenny, 1978. "The collective allocation of commodities in a democratic society: a generalization," Public Choice, Springer, vol. 33(2), pages 117-120, September.
    10. Saez, Emmanuel, 2013. "Optimal progressive capital income taxes in the infinite horizon model," Journal of Public Economics, Elsevier, vol. 97(C), pages 61-74.
    11. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    12. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65(2), pages 135-135.
    13. Mr. S. M. Ali Abbas & Nazim Belhocine & Ms. Asmaa A ElGanainy & Mr. Mark A Horton, 2010. "A Historical Public Debt Database," IMF Working Papers 2010/245, International Monetary Fund.
    14. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-190, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tchouassi, Gérard & Nkabkob Londjou, Thio'mi, 2022. "Budgetary principles in the Cemac zone : effectiveness or efficiency," MPRA Paper 113071, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sakiru Adebola Solarin & Olabisi Olabode Eric, 2015. "Impact of Economic Globalization on Human Capital: Evidence from Nigerian Economy," International Journal of Economics and Financial Issues, International Journal of Economics and Financial Issues, vol. 5(3), pages 786-789.
    2. Reiner Eichenberger & David Stadelmann, 2009. "Consequences of Debt Capitalization: Property Ownership and Debt/Tax Choice," CREMA Working Paper Series 2009-08, Center for Research in Economics, Management and the Arts (CREMA).
    3. Jose Tavares & Rossen Valkanov, 2001. "The neglected effect of fiscal policy on stock and bond returns," Nova SBE Working Paper Series wp413, Universidade Nova de Lisboa, Nova School of Business and Economics.
    4. Salvatore Nunnari & Jan Zapal, 2017. "A Model of Focusing in Political Choice," Working Papers 599, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    5. Bernasconi, Michele & Kirchkamp, Oliver & Paruolo, Paolo, 2009. "Do fiscal variables affect fiscal expectations? Experiments with real world and lab data," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 253-265, May.
    6. Alfred Haug, 2016. "A New Test of Ricardian Equivalence Using the Narrative Record on Tax Changes," Working Papers 1607, University of Otago, Department of Economics, revised Jul 2016.
    7. MICHEL, Philippe, 2003. "Public debt and limited altruism: is Ricardian equivalence possible if altruism is limited ?," LIDAM Discussion Papers CORE 2003008, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Prakhar Pandey & Vishal Sharma & Rajnish Pande & Pushp Kumar & Vinay Joshi Chandniwala, 2026. "Is fiscal deficit stimulus or constraint for economic growth in India? Empirical evidence using asymmetric and thresholds approaches," Economic Change and Restructuring, Springer, vol. 59(4), pages 1-39, August.
    9. Achua, Joseph Kwaghkor & Yusuf, Mariam & Wakdok, Samuel Stephen, 2022. "Nonlinear public debt and resource rent nexus in highly indebted resource-rich sub-Saharan economies: Evidence from Nigeria," Resources Policy, Elsevier, vol. 79(C).
    10. Brunila, Anne, 1996. "Fiscal policy and private consumption: Saving decisions: Evidence from Finland," Bank of Finland Research Discussion Papers 28/1996, Bank of Finland.
    11. Lind, Jo Thori, 2007. "Fractionalization and the size of government," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 51-76, February.
    12. John Bradbury & W. Crain, 2005. "Legislative district configurations and fiscal policy in American States," Public Choice, Springer, vol. 125(3), pages 385-407, December.
    13. Hayo, Bernd & Neumeier, Florian, 2017. "The (In)validity of the Ricardian equivalence theorem–findings from a representative German population survey," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 162-174.
    14. M. Luisa Fuster Pérez, 1993. "La Hipótesis de equivalencia ricardiana: un análisis empírico en los países de la Comunidad Europea," Investigaciones Economicas, Fundación SEPI, vol. 17(3), pages 495-506, September.
    15. Sardoni, Claudio, 2021. "The public debt and the Ricardian equivalence: Some critical remarks," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 153-160.
    16. Daniel Choi & Mark Holmes, 2014. "Budget deficits and real interest rates: a regime-switching reflection on Ricardian Equivalence," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(1), pages 71-83, January.
    17. Joseph Mawejje & Nicholas M. Odhiambo, 2022. "The determinants and cyclicality of fiscal policy: Empirical evidence from East Africa," International Economics, CEPII research center, issue 169, pages 50-70.
    18. Krishanu Pradhan, 2016. "Ricardian Approach to Fiscal Sustainability in India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 10(4), pages 499-529, November.
    19. Eduardo Wiesner, 2004. "El Origen Politico Del Deficit Fiscal En Colombia: El Contexto Institucional 20 Anos Despues," Documentos CEDE 2531, Universidad de los Andes, Facultad de Economía, CEDE.
    20. Joseph Mawejje & Nicholas M. Odhiambo, 2020. "The determinants of fiscal deficits: a survey of literature," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 67(3), pages 403-417, September.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ1:2015-01-19. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Monica Sinhat (email available below). General contact details of provider: https://econjournals.com/index.php/ijefi .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.