Non-Linear Effects of Fiscal Policy on Economic Growth: Moroccan Case

Redouan Abdenour and Said Tounsi

MPRA Paper from University Library of Munich, Germany

Abstract: In the economic theory, many arguments were advanced to justify the efficiency of the fiscal policy with a view to stabilization. For some, expansionist fiscal policies can have favorable effects on the economic growth, while for others, the economy is always in a global balanced situation, and thus the fiscal policy will have no effect and can be even harmful for the economy. However, these two effects can coexist in the economy, therefore putting forward the nonlinear character of fiscal policy in the economy growth. This study has the objective of appreciating the nature of the relation between fiscal policy and the economic growth in a 36 developing country sample of, taking into account the existence of possible nonlinear effects of the fiscal policy. Due to the use of the methodology of endogenous thresholds, the iterative procedure for the determination of endogenous thresholds developed by Hansen (1996, 1999, 2000) has allowed us to identify an optimal budget deficit threshold of 5,1%, which makes the relation between budget deficit and growth become non-linear. In other words, below this threshold expansionist policies have favorable effects on the economic growth, while above these policies it becomes non-favorable.

Keywords: economic growth; Keynesian regime; Threshold effects; Fiscal policy. (search for similar items in EconPapers)
JEL-codes: E6 E62 H6 (search for similar items in EconPapers)
Date: 2015, Revised 2016
New Economics Papers: this item is included in nep-fdg and nep-mac
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