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Fiscal policy and growth in new member states of the EU: a panel data analysis

Martina Dalic
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Martina Dalic: Zagreb School of Economics and Management, Zagreb, Croatia

Financial Theory and Practice, 2013, vol. 37, issue 4, 335-360

Abstract: Fiscal policy can have positive effects on economic growth through changes in the structure of total expenditure, i.e. reductions in unproductive or current expenditure, lower taxes, and higher government investment - provided that it is offset by a decrease in unproductive expenditure. Such changes reduce the size of government, which positively affects output growth. Lower volatility of government investment expenditure is also growth-enhancing. However, the strongest growth effects are found for improvements in the fiscal balance, in particular if achieved by a reduction in the size of government expenditure. This suggests that a cautious fiscal policy stance may be the best way to improve growth.

Keywords: growth; productive expenditure; distortionary taxation; volatility; fiscal balance (search for similar items in EconPapers)
JEL-codes: E62 H50 (search for similar items in EconPapers)
Date: 2013
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Handle: RePEc:ipf:finteo:v:37:y:2013:i:4:p:335-360