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Do Institutions Shape Fiscal Policy? Panel Evidence

Saima Nawaz and Muhammad Idrees Khawaja
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Saima Nawaz: COMSATS Institute of Information Technology
Muhammad Idrees Khawaja: Pakistan Institute of Development Economics

No 267, EY International Congress on Economics II (EYC2015), November 5-6, 2015, Ankara, Turkey from Ekonomik Yaklasim Association

Abstract: This study investigates the impact of institutions on government size using panel data for 56 countries over the period 1981-2010. The results show that institutions put constraints on aggregate spending in both developed and developing regions. However, the role of institutions varies with the level of development, the impact of most institutions on government spending being greater in the developed countries. The analysis further demonstrates that government stability and rule of law are relatively more effective at higher level of income while control over corruption is more important at low level of income. The implication is that developing nations should first focus on controlling corruption. Control over corruption will furnish the base environment required to benefit more from improvement in other institutions.

Keywords: Institutions; Fiscal Policy; Panel Data; Level of Development (search for similar items in EconPapers)
JEL-codes: C33 E02 H30 (search for similar items in EconPapers)
Pages: 2 pages
Date: 2015
New Economics Papers: this item is included in nep-mac
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