Abstract:This paper contributes to the limited literature on the factors conditioning the turning point of the public debt–growth relationship. A decade after the global financial crisis, when the debt ratio in many countries was still above pre-crisis levels, the COVID-19 pandemic again increased the pressure on public finances. It revived the debate on the ability to promote economic recovery through debt-financed government expenditure. However, more intense government borrowing increases its costs and uncertainty a… Show more
“…In general, only a few main reasons can be singled out, due to which a decrease in the level of public debt in the country can be observed. These are direct debt repayment due to an increase in revenues and decrease in budget expenditures, growth of inflation rate, which leads to depreciation of debt denominated in the respective currency, and rapid economic growth, which increases the level of GDP, and thus reduces the ratio of debt to this value (Butkus et al, 2021). Thus, when assessing the trends related to the reduction of public debt, it is worth assessing the causes of this phenomenon as well.…”
Public debt reduction is one of the main objectives of budget policy formation in the current crisis conditions. In this regard, the study of the experience of different countries in this area is relevant. Therefore, the aim of the study was to provide recommendations for reducing the debt burden in the Kyrgyz Republic, based on the experience of other countries. The main methods used in the research were historical, comparison and generalisation. The study analysed the factors affecting the reduction of public debt in the Kyrgyz Republic. It was concluded that the components that can help affect the debt burden in the country are inflation, economic development, and a targeted policy of the state to pay debts. It was shown that in the current realities, countries that are successful in this direction most often use the latter approach. In addition, the situation in Sweden, Switzerland and Iceland was analysed directly and the main recommendations were given as to how the Kyrgyz Republic can improve its current situation in terms of debt reduction. These recommendations focused primarily on fighting corruption and improving the situation in the context of institutional development, as well as reducing expenditures to achieve a budget surplus. It was recommended not to increase taxes directly to increase state revenues, but to increase the efficiency of their collection. The data obtained from the results of the study can be used to formulate public policy in the area of public debt and budget management both in the Kyrgyz Republic and in other countries
“…In general, only a few main reasons can be singled out, due to which a decrease in the level of public debt in the country can be observed. These are direct debt repayment due to an increase in revenues and decrease in budget expenditures, growth of inflation rate, which leads to depreciation of debt denominated in the respective currency, and rapid economic growth, which increases the level of GDP, and thus reduces the ratio of debt to this value (Butkus et al, 2021). Thus, when assessing the trends related to the reduction of public debt, it is worth assessing the causes of this phenomenon as well.…”
Public debt reduction is one of the main objectives of budget policy formation in the current crisis conditions. In this regard, the study of the experience of different countries in this area is relevant. Therefore, the aim of the study was to provide recommendations for reducing the debt burden in the Kyrgyz Republic, based on the experience of other countries. The main methods used in the research were historical, comparison and generalisation. The study analysed the factors affecting the reduction of public debt in the Kyrgyz Republic. It was concluded that the components that can help affect the debt burden in the country are inflation, economic development, and a targeted policy of the state to pay debts. It was shown that in the current realities, countries that are successful in this direction most often use the latter approach. In addition, the situation in Sweden, Switzerland and Iceland was analysed directly and the main recommendations were given as to how the Kyrgyz Republic can improve its current situation in terms of debt reduction. These recommendations focused primarily on fighting corruption and improving the situation in the context of institutional development, as well as reducing expenditures to achieve a budget surplus. It was recommended not to increase taxes directly to increase state revenues, but to increase the efficiency of their collection. The data obtained from the results of the study can be used to formulate public policy in the area of public debt and budget management both in the Kyrgyz Republic and in other countries
“…These were years characterised by scarcity, rationing, and patriotic self-restraint appeals, which led to an abnormally high rate of savings at a time when government budget deficits were huge. Butkus et al (2021a;2021b) found that an increase in public debt to GDP ratio is more likely to result in a positive debt effect on private consumption and investment. A positive relationship between public debt and private consumption and economic growth was found in China by Gu et al (2022).…”
The Ricardian equivalence hypothesis claims that private consumption is neutral to the fiscal deficit and its mode of financing (debt vs tax). The study reinvestigates the Ricardian equivalence hypothesis in India by taking private consumption as the dependent variable, whereas government expenditure, government debt, tax, domestic income, and trade are considered as independent variables. In the Indian context, the Ricardian view raises an interesting point. If the Ricardian equivalence holds in the Indian economy, households alter their spending patterns and consequently increase their savings, making the policy changes ineffective. The autoregressive distributed lag (ARDL) bound testing approach was applied to the annual time series data from 1988 to 2021. The estimates confirm a significant long-run and short-run relationship between the variables; the results reject the Ricardian Equivalence and propound the Keynesian approach that the mode of financing the fiscal deficit (debt vs tax) does matter to the private consumption expenditure. The estimates also assert the long-run relation between trade openness and private consumption spending. The positive and significant coefficient shows that an open economy leads to an increase in consumption, which indirectly supports the Compensation Hypothesis. Given that deficit financing and trade openness have a substantial influence on India’s consumer spending, it can be concluded that expansionary fiscal and liberal trade policies should be carefully devised and supported. This study contributes to the existing literature on the Ricardian equivalence and trade openness by presenting new evidence on designing sustainable fiscal policy by spending wisely without imperilling the country’s consumption expenditure and global presence.
“…However, the author found that the negative impact of debt on economic growth occurs when the debt reaches 60 per cent of GDP. Meanwhile, researchers Butkus et al (2021a) analyzing the breaking point of the relationship between public debt and growth, in terms of the tax burden, identify that low taxes (below the threshold level of 16.5 per cent of GDP tax revenue) are related to positive but insignificant effect of debt on economic growth. Leão (2015) found that very high public debt will not result a high tax burden or default because the central bank can keep government bond yields as low as necessary to make debt servicing negligible.…”
Purpose:The aim of our research is to assess the impact of public debt on tax burden within the member countries of the European Union (EU) during the period from 1995 to 2021.Methodology: The assessment of the impact of the public debt on the tax burden was implemented in two stages. Each of them uses two modifications of the model. Our methodology is based on multiple regression models.Findings: Our research findings suggest a dual impact of public debt on the tax burden: a reduction in the current period followed by an increase in future periods. Additionally, our study has unveiled that the influence of public debt on the tax burden is contingent upon the specific level of public debt being considered. Our findings confirmed that when public debt reaches a critical threshold of 55.88 percent of the GDP, any further government
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