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Public finance, governance, and growth in transition economies : empirical evidence from 1992-2004

Author

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  • Pushak, Taras
  • Tiongson, Erwin R.
  • Varoudakis, Aristomene

Abstract

This paper revisits the early empirical literature on economic growth in transition economies, with particular focus on fiscal policy variables-fiscal balance and the size of government. The baseline model uses a parsimonious specification, drawn from Fischer and Sahay (2000), of economic growth as a function of initial conditions, stabilization, liberalization, and structural reform. The paper expands the data used in previous analyses by up to 10 years and finds unambiguous evidence that fiscal balance matters for growth, while confirming other previous findings on the correlates of economic growth in transition economies. In addition, the paper extends the baseline model and explores potential sources of nonlinearities in the relationship between growth and public finance. A key finding is that determinants of growth may vary in relative importance, depending on the underlying institutional quality. The evidence indicates that there could be higher growth payoffs from macroeconomic stability and public expenditure in countries characterized by relatively better public sector governance as measured by relevant indicators. In addition, the size of government matters for growth in a nonlinear manner: Beyond indicative thresholds of expenditure levels, public spending has a negative impact, while at levels below the threshold, there is no measurable impact on economic growth.

Suggested Citation

  • Pushak, Taras & Tiongson, Erwin R. & Varoudakis, Aristomene, 2007. "Public finance, governance, and growth in transition economies : empirical evidence from 1992-2004," Policy Research Working Paper Series 4255, The World Bank.
    • Handle: RePEc:wbk:wbrwps:4255
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    Cited by:

    1. Afrifa, Godfred Adjapong & Tingbani, Ishmael & Yamoah, Fred & Appiah, Gloria, 2020. "Innovation input, governance and climate change: Evidence from emerging countries," Technological Forecasting and Social Change, Elsevier, vol. 161(C).
    2. Mohd Alsaleh & A. S. Abdul-Rahim, 2022. "An evaluation of bioenergy industry sustainability impacts on forest degradation: evidence from European Union economies," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(2), pages 1738-1760, February.
    3. Tuan T. Chu & Jens Hölscher & Dermot McCarthy, 2020. "The impact of productive and non-productive government expenditure on economic growth: an empirical analysis in high-income versus low- to middle-income economies," Empirical Economics, Springer, vol. 58(5), pages 2403-2430, May.
    4. Abid, Mehdi, 2016. "Impact of economic, financial, and institutional factors on CO2 emissions: Evidence from Sub-Saharan Africa economies," Utilities Policy, Elsevier, vol. 41(C), pages 85-94.
    5. Hüseyin Şen & Ayşe Kaya & Ayşegül Durucan, 2023. "New insights into the growth-maximizing size of government: evidence and implications for Turkey," Economic Change and Restructuring, Springer, vol. 56(4), pages 2243-2296, August.
    6. Hans Pitlik & Margit Schratzenstaller-Altzinger, 2011. "Growth Implications of Structure and Size of Public Sectors," WIFO Working Papers 404, WIFO.
    7. Jorge Martínez-Vázquez & Violeta Vulovic & Blanca Moreno Dodson, 2012. "The Impact of Tax and Expenditure Policies on Income Distribution: Evidence from a Large Panel of Countries," Hacienda Pública Española / Review of Public Economics, IEF, vol. 200(1), pages 95-130, March.
    8. Azmat Gani, 2012. "The Relationship Between Good Governance And Carbon Dioxide Emissions: Evidence From Developing Economies," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(1), pages 77-93, March.
    9. Kiran Asif & Samina Sabir & Unbreen Qayyum, 2024. "Corruption, Political Instability, and Environmental Degradation in South Asia: a Comparative Analysis of Carbon Footprint and Ecological Footprint," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 4072-4096, March.
    10. Rizwana Yasmeen & Ihtsham Ul Haq Padda & Xing Yao & Wasi Ul Hassan Shah & Muhammad Hafeez, 2022. "Agriculture, forestry, and environmental sustainability: the role of institutions," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(6), pages 8722-8746, June.
    11. Alberto Bucci, 2012. "Public Capital, Private Capital and Economic Growth," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 120(2), pages 149-180.
    12. Chuimin Kong & Jijian Zhang & Albert Henry Ntarmah & Yusheng Kong & Hong Zhao, 2022. "Carbon Neutrality in the Middle East and North Africa: The Roles of Renewable Energy, Economic Growth, and Government Effectiveness," IJERPH, MDPI, vol. 19(17), pages 1-24, August.

    More about this item

    Keywords

    Public Sector Expenditure Analysis&Management; Governance Indicators; Achieving Shared Growth; National Governance; Macroeconomic Management;
    All these keywords.

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