Growth, Deficits and Uncertainty in a Panel of 28 Countries

Eleftherios Goulas and Athina Zervoyianni

Working Paper series from Rimini Centre for Economic Analysis

Abstract: We examine the relationship between fiscal deficits and per-capita income growth in a panel of 28 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. 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 future prospects of the economy and no significant negative growth effects in the low-uncertainty case.

Keywords: growth; fiscal policy; government budget constraint; uncertainty (search for similar items in EconPapers)
JEL-codes: D80 E60 H60 O40 (search for similar items in EconPapers)
Date: 2012-07
New Economics Papers: this item is included in nep-eec, nep-fdg and nep-pbe
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:52_12

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