Growth effects of budgetary fiscal variables in a panel of middle-income countries

Sultan Hafeez Rahman () and Muhammad Shahadat Hossain Siddiquee ()
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Sultan Hafeez Rahman: BRAC University
Muhammad Shahadat Hossain Siddiquee: BRAC University

Review of World Economics (Weltwirtschaftliches Archiv), 2024, vol. 160, issue 1, No 5, 145-168

Abstract: Abstract This paper assesses the growth-enhancing and growth-retarding effects of different budgetary fiscal variables using a balanced panel of 32 middle-income countries for the time period of 2000–2017. Much of previous research requires to be re-evaluated as it ignores the biases associated with either incomplete or wrong specification, or both, of the budget constraint and the money supply. This paper addresses these gaps and obtains more unbiased, consistent and efficient estimates for the fiscal variables, using both static and dynamic panel econometric techniques. Specifically, this paper finds that (1) larger tax and non-tax revenues retard economic growth; (2) higher allocation to public capital expenditure appears to have positive and significant effect on growth; (3) fiscal deficit appears to have neutral-growth effects; and (4) controlling broad money supply corrects for biases in the orthogonal specification.

Keywords: Growth; Fiscal; Middle-income countries; Orthogonal; Structural (search for similar items in EconPapers)
JEL-codes: E63 F41 F62 F63 F68 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10290-023-00494-5

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