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The Effect of Global Financial Crisis on Budget Deficits in European Countries: Panel Data Analysis

Serdar Kurt (), Canan Gunes () and Verda Davasligil ()
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Serdar Kurt: Canakkale Onsekiz Mart University
Canan Gunes: Canakkale Onsekiz Mart University
Verda Davasligil: Canakkale Onsekiz Mart University

Istanbul University Econometrics and Statistics e-Journal, 2012, vol. 17, issue 1, 1-22

Abstract: The aim of the study is to investigate the effects of the 2008 Financial Crisis, which affected the financial variables as well as the real variables such as economic growth and unemployment, on budget deficits of countries. In the study, general government deficit or surplus, general government debt, total government expenditure, total government revenue, taxes on production and imports, government fixed investment and inflation data covering 1998-2008 periods have been used. In order to determine the effect of the crisis, the crisis dummy has been formed. The results of the study revealed that total government revenue and inflation have a positive effect on budget balance that is to say they reduce the budget deficit. On the other hand total government expenditures have a negative effect on budget balance that is to say they increase the budget deficit. In addition, the crisis variable is determined to have an increasing impact on budget deficit.

Keywords: Budget Deficit; Financial Crisis; Panel Data; Stimulus and Rescue Packages (search for similar items in EconPapers)
JEL-codes: H60 G01 C23 (search for similar items in EconPapers)
Date: 2012
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