IDEAS home Printed from https://ideas.repec.org/a/nrb/journl/v24y2012i1p1.html
   My bibliography  Save this article

Modelling and Forecasting Fiscal Policy and Economic Growth in Nepal

Author

Listed:
  • Ram Sharan Kharel, Ph.D.

    (Nepal Rastra Bank)

Abstract

This paper develops a macroeconomic forecasting model focusing on fiscal policy and economic growth in Nepal. The structure of the model, which comprises a total of 14 equations, allows alternative policy options for maintaining fiscal stability and promoting economic growth as well as switching deficit financing between domestic and foreign loans. We use annual data from 1992/93 to 2009/10 to estimate the model and provide out-sample forecasts for 2010/11 to 2012/13, consistent with the current Three Year Plan period, in order to evaluate the plan performance. The empirical evidence suggests that fiscal policy, particularly governments' capital expenditure affects economic growth positively and also crowds-in private investment. However, there exists a trade-off between fiscal stability and high level of economic growth as the policy goal of achieving both objectives seems to be unattainable. Finally, the out-sample forecast suggests that it is unlikely to attain the targeted economic growth in the Three Year Plan period from the planned fiscal outlay even if it is realized.

Suggested Citation

  • Ram Sharan Kharel, Ph.D., 2012. "Modelling and Forecasting Fiscal Policy and Economic Growth in Nepal," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 24(1), pages 1-15, April.
    • Handle: RePEc:nrb:journl:v:24:y:2012:i:1:p:1
    as

    Download full text from publisher

    File URL: https://www.nrb.org.np/contents/uploads/2019/12/NRB_Economic_Review-Vol_24-1_April_20121_Modelling_and_Forecasting_Fiscal_Policy_and_Economic_Growth_in_NepalRam-Sharan-Kharel-Ph.D..pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Eric M. Engen & Jonathan Skinner, 1992. "Fiscal Policy and Economic Growth," NBER Working Papers 4223, National Bureau of Economic Research, Inc.
    3. Charles I. Jones, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 495-525.
    4. Turnovsky, Stephen J, 2004. "The Transitional Dynamics of Fiscal Policy: Long-Run Capital Accumulation and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 883-910, October.
    5. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    6. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
    7. Mehrotra, Aaron N. & Peltonen, Tuomas A., 2005. "Socio-economic development and fiscal policy: lessons from the cohesion countries for the new member states," Working Paper Series 467, European Central Bank.
    8. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
    9. Ram Sharan Kharel PhD & Tap Prasad Koirala PhD, 2011. "Spatial Price Integration in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 23(1), pages 21-36, April.
    10. Theodore Pelagidis & Evangelia Desli, 2004. "Deficits, growth, and the current slowdown: what role for fiscal policy?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 26(3), pages 461-469.
    11. Ram Sharan Kharel, PhD & Tap Prasad Koirala, PhD, 2011. "Spatial Price Integration in Nepal," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 23(1), pages 21-36, April.
    12. Peretto, Pietro F, 2003. "Fiscal Policy and Long-Run Growth in R&D-Based Models with Endogenous Market Structure," Journal of Economic Growth, Springer, vol. 8(3), pages 325-347, September.
    13. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May.
    14. Khan, Mohsin S & Kumar, Manmohan S, 1997. "Public and Private Investment and the Growth Process in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(1), pages 69-88, February.
    Full references (including those not matched with items on IDEAS)

    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. Ram Sharan Kharel Ph.D., 2012. "Modelling and Forecasting Fiscal Policy and Economic Growth in Nepal," NRB Working Paper 09/2012, Nepal Rastra Bank, Research Department.
    2. Ram Sharan Kharel Ph.D., 2012. "Modelling and Forecasting Fiscal Policy and Economic Growth in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 24(1), pages 1-15, April.
    3. Capolupo, Rosa, 2009. "The New Growth Theories and Their Empirics after Twenty Years," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-72.
    4. Odedoyin, Stephen, 2012. "Changing Fiscal Policy Actions, Economic Growth and Inflation in Nigeria, 1980-2009," MPRA Paper 94431, University Library of Munich, Germany, revised 20 Jul 2012.
    5. Dean Scrimgeour, 2015. "Dynamic Scoring in a Romer‐Style Economy," Southern Economic Journal, John Wiley & Sons, vol. 81(3), pages 697-723, January.
    6. Åsa Johansson, 2016. "Public Finance, Economic Growth and Inequality: A Survey of the Evidence," OECD Economics Department Working Papers 1346, OECD Publishing.
    7. Turnovsky, S., 2000. "Growth in an Open Economy: some Recent Developments," Papers 5, Warwick - Development Economics Research Centre.
    8. Sefa Awaworyi Churchill & Mehmet Ugur & Siew Ling Yew, 2017. "Does Government Size Affect Per-Capita Income Growth? A Hierarchical Meta-Regression Analysis," The Economic Record, The Economic Society of Australia, vol. 93(300), pages 142-171, March.
    9. Gian Maria Milesi-Ferretti & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," Working Papers 95-18, New York University, Leonard N. Stern School of Business, Department of Economics.
    10. Sarantis Kalyvitis, 2003. "Public Investment Rules and Endogenous Growth with Empirical Evidence From Canada," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(1), pages 90-110, February.
    11. Rosa Capolupo, 2005. "THE NEW GROWTH THEORIES AND THEIR EMPIRICS, Discussion Paper in Economics, University of Glasgow, N. 2005-04 (http://www.gla.ac.uk/Acad/Economics," GE, Growth, Math methods 0506003, University Library of Munich, Germany.
    12. Norman Gemmell & Joey Au, 2013. "Government size, fiscal policy and the level and growth of output: a review of recent evidence," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 18(2), pages 203-229.
    13. A. Minniti & F. Venturini, 2014. "R&D Policy and Schumpeterian Growth: Theory and Evidence," Working Papers wp945, Dipartimento Scienze Economiche, Universita' di Bologna.
    14. Norman Gemmell, 2001. "Fiscal Policy in a Growth Framework," WIDER Working Paper Series DP2001-84, World Institute for Development Economic Research (UNU-WIDER).
    15. Dean Scrimgeour, 2015. "Dynamic Scoring in a Romer-Style Economy," Southern Economic Journal, Southern Economic Association, vol. 81(3), pages 697-723, January.
    16. Julia Korosteleva & Colin Lawson, 2010. "The Belarusian case of transition: whither financial repression?," Post-Communist Economies, Taylor & Francis Journals, vol. 22(1), pages 33-53.
    17. Amal MATALLAH & Amal MATALLAH, 2017. "Does fiscal policy spur economic growth? Empirical evidence from Algeria," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(612), A), pages 125-146, Autumn.
    18. Lucas Menescal & José Alves, 2022. "Optimal Threshold Taxation: An Empirical Investigation for Developing Economies," CESifo Working Paper Series 9782, CESifo.
    19. Gemmell Norman & Au Joey, 2013. "Do Smaller Governments Raise the Level or Growth of Output? A Review of Recent Evidence," Review of Economics, De Gruyter, vol. 64(2), pages 85-116, August.
    20. Elton Beqiraj & Silvia Fedeli & Francesco Forte, 2018. "Public budgetary rules and GDP growth: An empirical study on OECD and twelve european countries," Southern Economic Journal, John Wiley & Sons, vol. 85(1), pages 170-188, July.

    More about this item

    Keywords

    Fiscal Policy; Macroeconomic Modeling; Economic Growth;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

    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:nrb:journl:v:24:y:2012:i:1:p:1. 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: Publication Division NRB (email available below). General contact details of provider: https://edirc.repec.org/data/nrbgvnp.html .

    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.