Fiscal management on revenue-based or expenditure-based adjustments: an empirical evidence from EU-Countries

Abstract

An objective for each developed state remains the improvement of a suitable fiscal management system that could generate an increased level of resources. Further on, planning, distributing, allocating those resources to the proper beneficiaries, could generate an economic stabilization, suitable economic growth, decreased level of the net lending variable. The study consisted in an empirical research throughout it was developed the analysis of the impact of fiscal strategies and public expenses adjustments on economic growth and budgetary balance. Time series data from 1998 to 2018 were used on the empirical evidence over the European countries. The study developed an econometric model represented by an unbalanced panel data analysis having as independent variables: the variance of direct taxes, the dynamics of indirect taxes, the variance of budgetary balance, the variance of tax burden, the dynamics of change in net lending as percent of gross domestic product. The dependent variable was revealed throughout the variance of gross domestic product per capita. Over 588 time series observations and 28 cross-section data were taken into consideration in order to reveal if either revenue-adjustments or public-spending adjustments had a greater influence on the evolution of economic growth over the EU-Countries. The result of the econometric model exposed a positive correlation between total expenditure, budgetary balance and economic growth and a negative correlation between direct taxes, indirect taxes, tax burden and economic growth. Moreover, by generating dummy variables on the fixed effect model, it was revealed that large fiscal improvements had a less positive effect on the development of economic growth than fiscal adjustments based on medium-size consolidation.

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

“…The study reveals that expenditure contraction may aggravate unemployment. The study of Bazgan (2019) in the context of European countries finds low impact of large FA on growth as compared with the medium-size adjustment. The author based the analysis on Mankiw et al’s (1992) and Macek’s (2014) model.…”

“…Following Giavazzi and Pagano, many studies such as Alesina and Perotti (1995, 1996), Ardagna (2004), Gupta et al (2004), Dincer and Ozdemir (2009), Alesina and Ardagna (2013), De Cos and Moral-Benito (2013), Leibrecht and Scharler (2013), Afonso and Jalles (2014), Afonso and Martins (2016), Alesina et al (2018), Bazgan (2019), Acocella et al (2020), Fernandez-Albertos and Kuo (2020), Giesenow et al (2020), and Herwartz and Theilen (2020) have investigated different dimensions of the FAs, including success, magnitude, and consistency. As a consequence, consensus has been developed in a circle of researchers about the optimal composition of the FAs.…”

“…It has been observed that optimal composition of the FA depends on a country’s characteristics (Fotiou et al, 2020), policy makers should consider durability and impact on growth and equity of the selected fiscal measures (IMF, 2015). In case of OECD and the European countries, the studies of Alesina et al (2015) and Bazgan (2019) suggest that spending-based adjustments are on average more durable and expansionary, or are mildly recessionary. Similar conclusion was also shown by Alesina et al (1998), Devries et al (2011), and Alesina et al (2017).…”

“…Further official statistics reveal that the average fiscal deficit remained 5.6% of GDP over the past 5 years: with average expenditures stood at 20.5% against average revenue reached to 14.9% of GDP. The average inflation on the basis of Consumer Price Index (CPI) over the last 5 years remained 4.8% with 7% during July-April (2018-2019, while deficit on the current account stood at 6.3% of the GDP in 2017-2018 amounting to US$19.9 billion (Economic Survey of Pakistan [ESP], 2018[ESP], -2019. Looking at the tax structure over the past three decades, it is pertinent to indicate that Pakistan is facing dramatic shifts in its revenue structure and is on the move from indirect to direct taxation.…”