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Functional trinity of public finance in an emerging economy

Emilian Dobrescu ()

Journal of Economic Structures, 2018, vol. 7, issue 1, 1-27

Abstract: Abstract Two challenges in the literature have inspired this paper. First, the highly contradictory puzzle of debates on the “public budget–economic growth” correlation, explainable in great measure by the inadequacy of involved modeling tools (assumptions and specifications) with studied samples. Regarding this issue, the paper proposes three temporal scales of analysis: (1) the global historical trajectory of the modern society, concerning which the Wagner–Kaldor theorem has a leading explicative position; (2) the given structural state–society relationship, for which Barro–Armey–Rahn–Scully (BARS), Laffer in narrower sense (LINS), and the public budget balance restriction (BBR) curves are more suited; and (3) the short–medium horizon, where the Keynesian and post-Keynesian framework remains relevant. Another starting point of this paper refers to the second scale. While the BARS and LINS curves were extendedly examined, the BBR one benefited of attention only during the last period in the context of the sovereign debt crisis. Besides, all these functions were studied separately. Since in the real economy they interact continuously, we integrate BARS, LINS, and BBR curves into a unitary model with a “compatibility restriction” as technical solution. Data for an emergent medium-sized EU country (Romanian case study) illustrate this approach.

Keywords: Public budget; BARS; LINS; BBR; Collinearity; Compatibility restriction; Model simulations (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:spr:jecstr:v:7:y:2018:i:1:d:10.1186_s40008-018-0117-z