Abstract
Abstract: The debate regarding fiscal policy has given support to the formulation of an economic policy based on control of indebtedness and in persecution of public savings, acting as important support for the economic growth. This paper presents evidence that counter acts this theory of expansionary austerity. A set of panel data regressions is estimated - through Driscoll & Kraay’s, FGLS, panel corrected standard errors, and SUR estimators and the causality test approach proposed by Kónya (2006) - in search of robust inference related to the main determinants that encompasses the fiscal framework. Our conclusion is that the empirical evidence - using a set of 20 developed economies and other of 24 emerging economies - suggests that identical economic policies for different countries might conduce to results that are opposite to the desired outcome. Notwithstanding the adverse effects associated to explosive debt path, the search for “fiscal space” should be determined essentially by a pro-growth agenda. This is particularly important for the emerging economies facing the transition path challenges.
Highlights
The debate regarding fiscal policy has been focused so far on evidence of the relationship between debt and economic growth
The “annual rate of the GDP growth” series was obtained by a time series built from GDP data from two sources widely used in the literature: the databases of Maddison (2013) and the Total Economy Database (TED)11
Our results counteract the arguments that the increase in the public savings and declines in the rate Debt/GDP would be sine-qua-non conditions to the economic growth
Summary
The debate regarding fiscal policy has been focused so far on evidence of the relationship between debt and economic growth. This paper presents evidence that counteracts the traditional view of fiscal policy, known in the literature as a theory of expansionary austerity In this regard, it is aligned to several works that point to contractionary effects (expansionary) – measured in terms of reduction (expansion) of the growth rate of the GDP – due to fiscal contractions (expansions). With countries and/or periods slightly different, lead to results sometimes very different This literature, in general, uses time and panel (short) series. The possibility of bidirectional causality is considered, exposing its liquid effect; secondly, the causality tests used are based on specifications that consider explicitly the premise cross-section between the countries This is essential nor the Estimator Generalized Method of Moments (GMM), neither the obtained from Hurlin’s approach (2008), which is more commonly used in the literature that tests causality, consider the fact that a shock in a country can affect another country, in the same group whose characteristics are similar, as well as the contagious channel sometimes is clear.. This is essential nor the Estimator Generalized Method of Moments (GMM), neither the obtained from Hurlin’s approach (2008), which is more commonly used in the literature that tests causality, consider the fact that a shock in a country can affect another country, in the same group whose characteristics are similar, as well as the contagious channel sometimes is clear. Third, this paper is the result of a simultaneously transversal and temporal panel (Time Series Cross Section Date, TSCD3)
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