The Relationship of Fiscal Policy and Economic Cycle: Is Vietnam Different?

Dung Xuan Nguyen and Trung Duc Nguyen ()
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Dung Xuan Nguyen: Department of Finance and Banking, University of Finance and Marketing, Ho Chi Minh City 700000, Vietnam
Trung Duc Nguyen: Faculty of Banking, Ho Chi Minh University of Banking, Ho Chi Minh City 700000, Vietnam

JRFM, 2023, vol. 16, issue 5, 1-19

Abstract: Fiscal policy is one of the most crucial areas of government economic policy, and it has the potential to influence the economic growth of any nation. According to traditional Keynesian and Ricardian theories, fiscal policy should not be pro-cyclical, and counter-cyclical fiscal policy is the most effective alternative. Furthermore, the periodicity of fiscal policy is also heavily influenced by the quality of political institutions and democracies. Thus, this paper examines the relationship between fiscal policy and economic cycle in Vietnam, a developing economy with dramatic change since 2000. The results support the causal relationship between the set of fiscal policy factors, such as public debt, government tax revenues, and government expenditures, by analyzing quarterly data over a twenty-year period beginning in 2000 by using the Vector Error-Correction Model (VECM). Therefore, the adaptation of fiscal policy to the phases of the economic cycle and the effective deployment of fiscal policy tools help the sustainability of public finances and stimulate economic growth.

Keywords: economic cycle; fiscal policy; Vietnam; VECM (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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