A Dynamic Analysis of the Impact of Fiscal Adjustment on Economic Growth: Evidence From Pakistan

Hussain, Ibrar; Hussain, Jawad; Ali, Arshad; Ahmad, Shabir

doi:10.1177/21582440211027167

Cited by 5 publications

(6 citation statements)

References 113 publications

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“…As a result, the average government size in these countries, as measured by public spending, remained at 40% of GDP. In Pakistan, however, the average level of government spending over the entire sample period is 22.84 percent, and when cyclically adjusted, it is only 17.69 percent [ 13 ]. Following Hussain et al [ 13 ], each year’s change in the CAPB was scaled by the cyclically adjusted primary spending for that year.…”

Section: Resultsmentioning

confidence: 99%

“…In Pakistan, however, the average level of government spending over the entire sample period is 22.84 percent, and when cyclically adjusted, it is only 17.69 percent [ 13 ]. Following Hussain et al [ 13 ], each year’s change in the CAPB was scaled by the cyclically adjusted primary spending for that year. The justification for such scaling is based on the impact that a larger government has on the country’s current fiscal policy: the larger the government, the simpler it is to change fiscal policy.…”

Section: Resultsmentioning

confidence: 99%

“…Following in the footsteps of Giavazzi and Pagano, other studies have been conducted, including those by Alesina and Perotti [ 9 , 10 ], Ardagna [ 11 ], Alesina et al [ 12 ], and Hussain et al [ 13 ]. As a result, a group of researchers has come to an agreement on the best way to design the budgetary changes.…”

Section: Review Of Literaturementioning

confidence: 99%

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An analysis of the success of fiscal adjustment in reducing public debt: Evidence from Pakistan

Hussain

Bilal

2022

PLoS ONE

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This study seeks answers to questions such as: what is fiscal adjustment? Which fiscal strategy will result in a reduction in public debt liabilities? In the pursuit of answers to these questions, the study has defined two objectives. Firstly, the fiscal adjustment episodes must be identified in order to detach the discretionary fiscal stance; secondly, the success of these adjustment episodes in reducing public debt liabilities must be assessed. As a result, attempts will be made to undertake analyses that would simplify the issues underlying Pakistan’s practical policy options. A total of eleven adjustment episodes have been observed in a sample, ranging from 1976 to 2017, following Alesina and Ardagna’s definition. The descriptive analysis reveals that five episodes succeeded in reducing the public debt, while six episodes failed to reduce the ratio. Out of the five successful episodes, four are found to be spending-based and one is tax-based. To quantify the success of fiscal adjustment, the empirical model has been calibrated on Leibrecht and Scharler’s model and estimation is done via both the Ordinary Least Squares (OLS) and Robust Least Squares (RLS) methods. The RLS method produces better outcomes than the OLS method. Under RLS, all variables are significant except GDP growth, whereas in the OLS model, the election year and regime shift, together with GDP growth, are statistically insignificant. The fiscal adjustment’s composition reveals that spending-based consolidation boosts the chances of the fiscal adjustment’s success. Fiscal authorities should, therefore, adopt spending-based austerity measures to ensure the sustainability of public finances and prevent the negative macroeconomic consequences of unsustainable public debt.

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Section: Resultsmentioning

confidence: 99%

Section: Resultsmentioning

confidence: 99%

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An analysis of the success of fiscal adjustment in reducing public debt: Evidence from Pakistan

Hussain

Bilal

2022

PLoS ONE

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“…To stabilize the economy during the periodic boom and bust cycles, which span three to four years each, fiscal and monetary measures are required. The economy is currently under increasing strain on both the fiscal and foreign fronts as a result of large budget and current account deficits (Hussain et al, 2021 , 2022 ). In order to pay off debt, which takes up a sizeable chunk of the federal budget, in light of declining foreign exchange reserves, the government allocates a sizeable portion of its budget to this purpose.…”

Section: Introductionmentioning

confidence: 99%

A Dynamic Analysis of the Twin-Deficit Hypothesis: the Case of a Developing Country

Hussain

Hayat

Alam

et al. 2023

Asia-Pac Financ Markets

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The main economic challenge is rising aggregate demand, which leaves the economy short on resources and leads to expanding fiscal and external account deficits. The current study uses autoregressive distributed lag (ARDL) model to evaluate the twin deficit hypothesis in the context of Pakistan in an effort to find an answer to this question. The study uses augmented ARDL, popularized by McNown et al. (Appl Econ 50:1509–1521, 2018) and Sam et al. (Econ Model 80:130–141, 2019), to address the degenerate problems that might arise while applying the ARDL approach. Two separate models were estimated, one with the current account balance as the dependent variable and the other with the balance of trade. In the long run, both models confirm the conventional interpretation of twin deficit hypothesis in Pakistan, with the causality running only from the fiscal deficit to the balance of trade. Other control variables in both models are crucial in understanding the current account balance and balance of trade. According to models, an increase in the exchange rate, as measured by the log of the nominal effective exchange rate, improves both current account and trade balance, verifying the elasticity approach in the long run. The openness of the economy is found to worsen current account balance, and the result is statistically significant. Contrarily, openness has been improved trade balance, but the result is statistically insignificant. To control a large and persistent external deficit, the government has to reduce its fiscal deficit, and such a strategy would be successful when monetary policy is accommodative.

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“…Fiscal policy can also boost economic growth, but it faces different challenges and views in developing countries. For example, fiscal policy can positively and negatively affect current and future generations, depending on how revenue is raised and spent (Hussain et al, 2021). Moreover, developing countries have difficulties mobilizing domestic resources and adopting effective spending strategies due to low tax bases, institutional problems, and a lack of research on optimal fiscal stances.…”

Section: Introductionmentioning

confidence: 99%

Fiscal Sustainability and Its Implications for Economic Growth in Egypt: An Empirical Analysis

Alshaib,

Al khatib,

Nuta

et al. 2023

SAGE Open

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This study examines the association between fiscal sustainability indicators and Egypt’s economic growth from 1980 to 2018. Fiscal sustainability refers to a government’s ability to generate sufficient revenue to cover its costs and debt obligations in the long run without excessive borrowing or money creation. Egypt’s economic growth has slowed, raising questions about fiscal sustainability. This study aimed to analyze the dynamic relationship between fiscal sustainability indicators (government revenue, expenditure, external debt) and economic growth in Egypt. The autoregressive distributed lag (ARDL) bounds testing approach and unrestricted error correction model were applied to annual data from 1980 to 2018. A dynamic link was found between fiscal sustainability indicators and economic growth. Government expenditure and external debt significantly impacted economic expansion in the long term, while government revenue did not. Fiscal sustainability, measured by growth in total government expenses, external debt obligations, and revenue, significantly influences Egypt’s economic growth. Prudent fiscal management is crucial for sustained economic development. Policymakers should focus on controlling government spending, limiting external debt, and improving revenue generation to promote long-term economic growth in Egypt. Fiscal sustainability must balance critical investments in public services. Carefully managing fiscal deficits is key to unleashing Egypt’s economic potential. This study provides valuable insights into the connection between fiscal policy and economic growth in Egypt, informing policymakers’ decisions.

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A Dynamic Analysis of the Impact of Fiscal Adjustment on Economic Growth: Evidence From Pakistan

Cited by 5 publications

References 113 publications

An analysis of the success of fiscal adjustment in reducing public debt: Evidence from Pakistan

An analysis of the success of fiscal adjustment in reducing public debt: Evidence from Pakistan

A Dynamic Analysis of the Twin-Deficit Hypothesis: the Case of a Developing Country

Fiscal Sustainability and Its Implications for Economic Growth in Egypt: An Empirical Analysis

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