Budget Deficit and Economic Growth Prediction in the Case of Vietnam

Abstract

Along with monetary tools, fiscal policies have been strong instrument of the government to boost the economy, especially in recession periods, as a reason, the government always has to face budget deficit, whose effect is still controversial. Thus, this paper is aim to clarify the impacts of budget deficit on economic growth in the case of Viet Nam, and access long-run relationship among macro variables, by applying Autoregressive Distributed Lag (ARDL) to analyze quarterly data for the period from 2003 to 2015. After undertaking statistical method, it’s convinced that there is a long-run relationship among macro variables. Besides, budget deficit has no effect on economic growth, which is relevant to Ricardian paradigm. Whereas, productive expenditures has significant positive impact. However, non-productive spending and consumer price index (inflation) both reveal adverse effect. Therefore, all government’s decisions in term of spending are recommended to be taken under precautions.