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Do Institutions Shape Fiscal Policy? Panel Evidence

Author

Listed:
  • Saima Nawaz

    (COMSATS Institute of Information Technology)

  • Muhammad Idrees Khawaja

    (Pakistan Institute of Development Economics)

Abstract

This study investigates the impact of institutions on government size using panel data for 56 countries over the period 1981-2010. The results show that institutions put constraints on aggregate spending in both developed and developing regions. However, the role of institutions varies with the level of development, the impact of most institutions on government spending being greater in the developed countries. The analysis further demonstrates that government stability and rule of law are relatively more effective at higher level of income while control over corruption is more important at low level of income. The implication is that developing nations should first focus on controlling corruption. Control over corruption will furnish the base environment required to benefit more from improvement in other institutions.

Suggested Citation

  • Saima Nawaz & Muhammad Idrees Khawaja, 2015. "Do Institutions Shape Fiscal Policy? Panel Evidence," EY International Congress on Economics II (EYC2015), November 5-6, 2015, Ankara, Turkey 267, Ekonomik Yaklasim Association.
  • Handle: RePEc:eyd:cp2015:267
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    More about this item

    Keywords

    Institutions; Fiscal Policy; Panel Data; Level of Development;
    All these keywords.

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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