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Growth, deficits and uncertainty: Theoretical aspects and empirical evidence from a panel of 27 countries

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  • Goulas, Eleftherios
  • Zervoyianni, Athina

Abstract

We examine the relationship between fiscal deficits and per-capita income growth in a panel of 27 European countries, allowing for perceived risks, in terms of fiscal sustainability, associated with additional government spending. Such risks are proxied by the conditional variability of manufacturing production and stock market returns and by the unconditional variability of two survey-based economic-sentiment indicators. To help clarifying how fiscal variables impact on growth and to provide a point of reference for the interpretation of the empirical results a structural growth model is first identified. We find evidence of an asymmetric relationship, in that fiscal deficits give rise to adverse growth effects if they coincide with high uncertainty regarding the prospects of the economy and no significant negative growth effects in the low-uncertainty case.

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  • Goulas, Eleftherios & Zervoyianni, Athina, 2013. "Growth, deficits and uncertainty: Theoretical aspects and empirical evidence from a panel of 27 countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(4), pages 380-392.
    • Handle: RePEc:eee:quaeco:v:53:y:2013:i:4:p:380-392
    DOI: 10.1016/j.qref.2013.07.005
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    Cited by:

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    3. Ehigiamusoe, Kizito Uyi & Lean, Hooi Hooi, 2020. "The role of deficit and debt in financing growth in West Africa," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 216-234.

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    More about this item

    Keywords

    Growth; Fiscal policy; Government budget constraint; Uncertainty;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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