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The Fiscal-Growth Nexus

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  • António Afonso
  • João Tovar Jalles

Abstract

We assess the fiscal-growth nexus with a large country panel, accounting for the usually encountered econometric pitfalls. Our results show that revenues have no significant impact on growth whereas expenditures have negative effects. The same is true for the OECD with the addition that government revenue has a negative impact on growth. Taxes on income are usually detrimental to growth, as well as public wages, interest payments, subsidies and government consumption have a negative effect on growth. Social spending is detrimental to growth; spending on education and health boosts growth; and there is weak evidence supporting causality running from expenditures and revenues to output and TFP.

Suggested Citation

  • António Afonso & João Tovar Jalles, 2012. "The Fiscal-Growth Nexus," Working Papers Department of Economics 2012/01, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp012012
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    More about this item

    Keywords

    budgetary decomposition; crises; panel analysis.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single 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
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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