FISCAL POLICY AND INSTITUTIONAL BUDGET ARCHITECTONICS

We focus on the role of fiscal policies in macroeconomic stabilization in eastern Europe and assess the sustainability of fiscal policies for the central and eastern European economies in transition. We show the main causes of fiscal imbalances experienced at the beginning of the transition process. Countries that adopted tight fiscal policies were more successful with their inflation stabilization programmes, have experienced a faster recovery of growth, and did not experience a steeper decline in output. Countries with unsustainable fiscal policies all floated their exchange rate, but there are both floating and peg arrangements among the successful stabilizers. In all the successful cases, however, current account convertibility was established. We also discuss the experience of Poland and Romania--two polar cases in terms of fiscal policies and present lessons and policy recommendations for other economies in transition. Copyright 1997 by Oxford University Press.

Urgency of the research. The forming-up of public finances effective system involves the improving fiscal policy as an important component of socio-economic transformation. Target setting. Currently, the important tasks are to prove the fiscal policy role in the social and economic reforms, to open its priorities and objectives, to identify ways to implement them. Actual scientific researches and issues analysis. A wide range of scientists publishing by such scientists as T. Boholib, О. Vasylyk, I. Zapatrina, L. Lysyak, I. Lukyanenko, V. Fedosov, I. Chuhunov and others are dedicated to development of fiscal policy formulation and implementation approaches, to define its priorities and directions to implement them. Uninvestigated parts of general matters defining. However, at this stage, despite the numerous important scientific researches it is important to deepen the researches of the fiscal policy role as part of the socio-economic transformations. The research objective. To substantiate the fiscal policy role as a component of socio-economic transformations, to define its priority tasks and directions of their implementations. The statement of basic materials. Fiscal policy is a powerful instrument of socio-economic processes state regulation. Currently, the main objective of fiscal policy is to stabilize public finances. The basic condition is to support the macroeconomic stability, to speed up the economic growth, to implement the effective governance, to strengthen decentralization processes and to reform the public finances system. Conclusions. Effective fiscal policy provides an opportunity to increase the level and quality of life, to create conditions for sustainable economic growth, to modernize the economy and social sphere, to achieve the strategic objectives of socio-economic development.

Relevance of the research topic. In the current conditions of development of social relations, the issues of increasing the validity of fiscal policy, using its regulatory potential for the proper fulfillment of tasks and functions entrusted to them by state bodies and local self-government bodies are actualized. An important task of fiscal policy is to improve its instruments aimed at accelerating economic growth. At the same time, the peculiarities of the formation and implementation of fiscal policy in both the advanced and transformational economies are conditioned by a number of factors, the most important of which are: the level of economic growth and institutional capacity of the country. Formulation of the problem. Based on the transformation processes in the domestic system of public finances, the major tasks are: the reconciliation of fiscal policy with the strategic task of socio-economic development of the country, improving the architecture of budget revenues and expenditures; ensuring the concentration of limited budgetary resources in those sectors of the economy that will facilitate the acceleration of economic growth, which requires further scientific studies of theoretical and applied aspects of fiscal policy formulation and implementation, assessment of its impact on the level of economic growth. At the same time, the choice of fiscal policy instruments should be made taking into account the cyclical and dynamic economic processes. Analysis of recent research and publications. The problems of forming and implementing fiscal policy are quite common in scientific research. These are the works of well-known domestic and foreign scientists: J. Buchanan, W. Mitchell, J. M. Keynes, T. Bogolib, I. Zapatrina, L. Lisyak, I. Chugunov and others. Highlighting unexplored parts of a common problem. The aforementioned issues are updated due to the increasing globalization processes, the unfavorable external and internal economic environment, which requires a number of specific tasks related to the development of fiscal policy. Goal setting, research goals. The objectives of the study are: to reveal the nature and role of fiscal policy in ensuring economic growth, to substantiate the features of fiscal policy in the current conditions of development of the public finance system; to analyze and evaluate the consolidated budget revenues and expenditures; identify the main factors that influence the peculiarities of fiscal policy implementation; to open up provisions for improving the efficiency of the fiscal policy regulatory mechanism. The purpose of the study is to substantiate the priorities of fiscal policy of economic growth in the context of institutional transformation. Research method or methodology. The set of methods of scientific research is applied in the article: systematic approach, statistical analysis, structuring, analysis, synthesis, etc. Basic material presentation (results of work). The essence and role of fiscal policy in ensuring the economic growth of the country are determined. The consolidated budget revenues and expenditures have been analyzed and estimated. The priorities of fiscal policy of economic growth in the context of institutional transformations are substantiated. Area of application of results. The results of this study can be applied in the process of forming and implementing fiscal policy of Ukraine, reforming the public finance system. Conclusions according to article. Fiscal policy is a dynamic system of goals, directions and tasks of public authorities and local self-government aimed at ensuring the stability, stability and balance of the budget system, further improving the institutional environment of budgetary relations, taking into account the cyclical and dynamic economic processes. Developing an effective fiscal policy involves developing a structural and functional model of fiscal policy that is based on the integration of institutional components of the budgetary space. Assessment of the impact of fiscal policy on economic growth should include a detailed analysis of the architecture of budgetary indicators, as well as an assessment of possible risks. In modern conditions of development of social relations the important tasks of fiscal policy are: optimization of the level of tax burden; improvement of the architectonics of budget expenditures (a significant share of budget expenditures goes to consumption); improving the architecture of budget revenues, in particular by changing the relationship between indirect and direct taxes; raising the level of the regulatory function of fiscal policy, in particular by supporting the development of major sectors of the economy. The article identifies strategic priorities of fiscal policy of economic growth in the context of institutional transformations.

Trade liberalization is often found to be key determinant of economic growth in the literature. However, in this paper we argue that the relationship between trade openness and economic growth is more ambiguous and controversial from both theoretical and empirical point of view. With regard to the latter theoretical propositions in favour of trade liberalisation rests on arguments of greater economic efficiency enhanced by lower costs of trade, lower transaction costs, increased specialisation, scale economies, and competitive pressure, which in turn foster better economic performance and increases in economic growth rates. On the other hand, it has been argued that 'passive' trade liberalisation may not necessarily lead to optimal or positive economic outcomes in the context of less (technologically) advanced economies given their limited ability to reap off the benefits of free trade including limited absorptive capabilities, pervasive market and coordination failures inhibiting development of strategic, infant or new industries, and potential ‘crowding out’ effect of trade liberalisation on domestic firms and industries. In view of this, when examining the effect of trade on economic growth it is important to control for the differences in the degree of industrial development and technological sophistication between trading countries, as well as the importance of scale economies and policy stances. As far as empirical work on the matter is concerned lot of controversies are related to methodological issues including the measurement of trade openness, methods of investigation and preferred specifications of the model. In this paper, we argue at length that measuring trade openness as the volume of export and imports as a share of total GDP may lead to misleading conclusions about benefits of trade liberalisation fostering income and economic growth. This is to say that different trade openness indicators are important to be considered when analysing the relationship between economic growth and trade, pointing to the dichotomy between trade protection and/or trade liberalisation indicators vs trade intensity and trade potential indicators, which may lead to different outcomes and policy conclusions. In light of this discussion, this paper embarks from previous literature in that i) it examines the impact of and policy implications of different trade openness indicators on economic growth in transition economies, ii) it studies the relationship between trade barriers and economic growth in transition economies that have not been previously investigated, iii) as well as it relies on different panel data estimators i.e. static and dynamic while accounting for the endogeneity issues. The empirical analysis covers Central and Eastern European transition economies in the period from 1992-2014. The results of our analysis point to the importance of specification of trade, proper treatment of the possible simultaneity bias in the relationship, and the differences in the levels of industrial and technological development across countries. Specifically, we find positive and significant impact of trade intensity indices on economic growth in CEE countries robust to different methods of investigation, model specification and sensitivity tests. However, the results of this empirical study do not render support to the hypothesis that trade liberalisation policy is beneficial to growth performance in the specific context of selected transition economies.

In this study, we focus solely on economies in transition. The classification of the countries into the low-income and high-income economies in transition are based on the classification of the World Bank and on our own classification based on an income threshold that is endogenously estimated by our model. We use fixed-effects and dynamic panel technique such as system generalized method of moments (GMM) estimation in our analysis to mitigate endogeneity problem. Our empirical study uses dynamic econometric models to examine the relationship between income inequality and economic growth in the economies in transition. We find a positive relationship between income inequality and economic growth in high-income economies in transition, which is in stark contrast with the negative relationship for low-income economies in transition. We also find that inflation rate negatively and significantly affects economic growth in the low-income economies in transition, while it positively and significantly affects economic growth in the high-income economies in transition. We estimate an income threshold endogenously and reestimate both regressions according to our own threshold. Importantly, the contrasting qualitative difference (between low-income economies in transition and high-income economies in transition) in the relationship between income inequality and economic growth is robust whether we follow the World Bank’s classification of economies in transition or whether we classify them accordingly to what the data in our sample suggest.

The purpose of the article is to reveal the role of budgetary projection in the system of financial and economic regulation of social processes within the framework of improving the efficiency of fiscal policy intended to macroeconomic stability maintenance in both countries with transformational and advanced economies. The comparative and factorial methods allowed to developthe features of the institutional environment of the budgetary progection methodology, to identify approaches for its improvement. Methodology. Substantiation of the role of budget forecasting in the system of financial and economic regulation of social processes, determination of provisions for improving its methodology is based on generalized and systematic approaches that are applied in both developed and transformational economies. An analysis of the stages of the process and the budgetary projection methods evaluation, that are used in different countries, have been carried out. Results showed that the efficient budgetary projection methodology is the basis for sound fiscal policy. The development of realistic budgetary projections facilitates justified management decisions aimed at ensuring the country financial firmness. Devia-tions from budget revenues from the projected indicators do not make it possible to achieve certain fiscal policy outcomes and, accordingly, cause a budget cut. In order to develop realistic budgetary projections, a welldesigned and coherent database is needed for all time series, necessary to analyze and project budget revenues. Time series of key determinants affecting the budget revenues level should be available at different frequencies (monthly, quarterly, annually). Where data reflecting similar economic processes by different revenue sources are available, any differences between them shall be determined by reference to their coverage and methodology. Practical implications. Budgetary projections are the basis for the formation of effective fiscal policy and the benchmark of the reproduction process. Adequate level of justification for budget projection will help to provide a dynamic balance of budgetary indicators and the budgetary system stability. Institutional changes to the budgetary projection methodology should be made on the basis of taking into account the dynamic interrelation of budgetary and macroeconomic indicators. The remarkable task here is the development of an economic and mathematical model based on the assessment of the national economy capabilities by reference to the assessment of macroeconomic proportions and the corresponding social and economic conditions of social production. Value/ originality. Developing the budgetary projection approaches in the context of improvement of the fiscal policy efficiency is an important precondition for ensuring macroeconomic stability. In order to increase the budget projection justifiability, it is advisable to make institutional changes to its methodology. Based on the methioned above, the article reveals the essence and role of the budgetary projection in the system of financial and economic regulation of social processes in the context of improving the fiscal policy effectiveness aimed at macroeconomic stability maintenance; approaches to improving the budgetary projection methodology have been identified, and it has been determined that the soundness and feasibility of budgetary projection are the basis for effective fiscal policy. The predictability of budgetary criteria, budgetary architectonics contribute to improving the efficiency of transformations in the public finance system.

Macroeconomic Gains from Structural Fiscal Policy Adjustments:The Case of Colombia Hernando Vargas (bio), Andrés González (bio), and Ignacio Lozano Policymakers worldwide are drawing key lessons from recent academic debates on the role of fiscal policy in the recovery of advanced economies. Many emerging markets have already addressed some of the focal issues currently being discussed, in response to the collapse of their economies in the late 1990s. Some of the key issues include the timing of adjustments and their progressive nature; the need for fiscal stimulus programs and their scope; the proper choice of fiscal instruments and their potential effectiveness along the cycle; and the appropriate public-debt threshold to avoid hampering economic growth.1 Regardless of the tenets followed, many governments were compelled to adopt tight financial stances in this earlier episode, mostly due to credit market restrictions. By the turn of the century, Colombia, like several other Latin American countries, was on a growth-recovery path based on a broad set of structural economic reforms. In particular, the Central Bank of Colombia had adopted an inflation-targeting regime with a floating exchange rate, which enhanced the institution’s credibility and counteracted external shocks. The government also implemented prudential measures to strengthen the financial system and labor market policies to promote flexibility and competitiveness, and the economy was becoming increasingly integrated into global trade and financial [End Page 39] markets. However, the cornerstone of all the reforms was the rebalancing of the government’s finances by improving its revenues, rationalizing expenditures, and establishing new and effective institutions. The overarching goal was to attain a sustainable path for the country’s public debt, as well as its long-term economic growth. Not surprisingly, this set of cautious policies had further effects on the short- and long-term behavior of the macroeconomy, particularly its response to exogenous shocks. First, the country overcame a rising and unsustainable debt path through a series of reforms that decreased the ratio of debt to gross domestic product (GDP) between 2003 and 2008 and fostered its current stability. Second, explicit policies to diminish the currency mismatch of the government’s finances lessened their vulnerability to sharp depreciation episodes and adverse external shocks. Third, the composition of the public debt was shifted toward fixed-rate, peso-denominated bonds with longer maturities, thereby deepening the local sovereign debt market. This paper highlights some relevant aspects of Colombia’s fiscal policy and public debt management during the past ten years and assesses some of their short-term macroeconomic effects. In particular, we analyze the influence of fiscal policy changes on the short-term output response to fiscal shocks and the impact of monetary policy shocks on market interest rates. To do so, we used the structural nonlinear impulse response functions suggested by Auerbach and Gorodnichenko and by Jordà.2 We also identify the unexpected fiscal and monetary policy shocks through methods inspired by the narrative approach of Romer and Romer and also Ramey.3 We conclude that a sound fiscal policy brings strong countercyclical benefits to both monetary and fiscal decisions. Fiscal Policy in Colombia The adoption of a new constitution in 1991 implied a strong expansion of the size of government in Colombia. Increased demand for public spending on health, education, and justice drove the central government’s primary expenditures from 7.2 percent of GDP in 1990 to 12.4 percent of GDP in 2000. At the same time, the constitution of 1991 and legal reforms extended fiscal decentralization and imposed a regime in which an increasing fraction of the central government’s current revenues was transferred to local governments. The tax increases adopted to pay for the additional expenditures were not sufficient and [End Page 40] had to be shared with local governments, which, in turn, increased their spending. In addition, the intertemporal solvency of the pay-as-you-go national pension system was questionable, given its prevailing parameters and the coexistence of a defined-contribution private pension fund system. By the end of the 1990s, fiscal sustainability in Colombia was uncertain. The ratio of central government debt to GDP was rising fast, and several local governments were over-indebted. The external shocks...

This study investigates the comparative effect of fiscal and monetary policy on economic growth in Pakistan using annual time series data from 1981 to 2009. The cointegration result suggests that both monetary and fiscal policy have significant and positive effect on economic growth. The coefficient of monetary policy is much greater than fiscal policy which implies that monetary policy has more concerned with economic growth than fiscal policy in Pakistan. The implication of the study is that the policy makers should focus more on monetary policy than fiscal to enhance economic growth. The role of fiscal policy can be more effective for enhancing economic growth by eliminating corruption, leakages of resources and inappropriate use of resources. However, the combination and harmonization of both monetary and fiscal policy are highly recommended.

Effective management of Indonesia’s macroeconomic variables –production, inflation, money supply, aggregate demand, and interest rates– is crucial for economic stability and growth. This study examines the fiscal and monetary policies implemented by the Indonesian government from 2015 to 2019 and assesses their impact on key macroeconomic variables. Utilizing a qualitative research approach and comprehensive literature review, the study analyzes the principles and implementation of these policies. Fiscal policies, including infrastructure development, social protection, and tax amnesty, significantly contributed to economic growth and reduced unemployment. Monetary policies, such as interest rate adjustments, open market operations, and reserve requirements, maintained inflation around 3% and improved liquidity. However, economic growth fluctuated, indicating the need for better policy coordination. The study highlights the importance of strategic fiscal and monetary policies in achieving macroeconomic stability and offers insights into optimizing these tools for addressing economic challenges and promoting long-term development in Indonesia.Keywords: Indonesian government; macroeconomic management; fiscal policy; monetary policy; economic growth

1. Introduction The frequency and extent of business cycles fluctuations entail significant implications for the real economic activity and the well-being of society. Business cycles volatility reflecting country exposure and vulnerability to shocks, is considered a crucial determining factor for a wide range of economic outcomes including long-run growth (Ramey and Ramey, 1995; Hnatskovsa and Loayza, 2004), welfare (Pallage and Robe, 2003; Barlevy, 2004) and income distribution and poverty (Laursen and Mahajan, 2005; Calderon and Levy-Yeyati, 2009). Notwithstanding there is a subsequent difference between developed and developing economies concerning the level of macroeconomic volatility (Bejan, 2006; Hakura, 2009), there is clear evidence that most advanced economies have experienced a striking decrease in the output volatility over the past 30 years. This period of diminishing volatility starting in the mid 1980s is known as "The Great Moderation" (3). The analysis of the phenomenon has mainly focused on the US economy while there is little evidence for the EMU countries (Gonzalez-Cabanillas and Ruscher, 2008). The ongoing recession started in 2007 has caused volatility to move considerably higher posing concerns on whether the Great Moderation is over or not. According to World Economic Outlook (2005), the determinants of output volatility may be broadly categorized into four groups: namely, the stability of macroeconomic policies in regards of fiscal policy indicators, trade and financial integration, financial sector development, and finally the quality of institutions. Also, other structural characteristics are to be cited autonomously including the volatility of terms of trade and the flexibility of exchange rates. Trade openness is often associated with business cycles fluctuations despite the relationship between openness to trade and business cycle volatility remains ambiguous (Bejan, 2006; Di Giovanni and Levchenko, 2008; Cavallo, 2008; Cavallo and Frankel, 2008). Kose and Yi (2003) suggest that the effects of trade openness on output volatility are strictly related with the emerging patterns specialization and the nature of shocks. Also, the role of fiscal policy in driving business cycles fluctuations and the relationship between fiscal policy variables with output fluctuations are of particular importance (Lane, 2003; Gali and Perotti, 2003; Alesina et al. 2008). Fatas and Mihov (2003) who investigate the impact of discretionary fiscal policy on output volatility and growth, suggest that discretionary fiscal policy increases output volatility which in turn lowers economic growth. Debrun and Kapoor (2010) find that, after accounting for 3 key dimensions of fiscal policy discretionary fiscal policy linked to cyclical conditions does not have a significant effect on output volatility. Structural determinants of business cycles fluctuations are widely investigated. Acemoglu et al. (2003) investigate the effect of institutions on volatility and crises via a number of macroeconomic and microeconomic routes. The empirical results suggest that low quality institutions cause volatility through a variety of micro and macro mediating channels. Gallegati et al. (2004) who examine business cycles characteristics of Mediterranean countries, find that output volatility varies across countries as a result of different stages of development. The relationship between financial sector (openness, integration, development and liberalization) and business cycles volatility has recently received increasing attention among economists. Calderon and Hebbel (2008) find that the impact of financial openness on aggregate volatility is subject to the level of debt-equity ratios in countries under investigation. Higher financial openness is associated with a negligible effect on volatility in countries with high debt-equity ratios. More particularly, the authors argue that the relationship between financial depth measured by the ratio of debt liabilities to GDP and the volatility of output fluctuations appears positive as loan-related liabilities are driven by nominal shocks while the link remains negative in the presence of real shocks (equity-related liabilities). …

Monetary policy and fiscal policy are sister strategies that can be used alone and in combination to direct the economic goals. In the literature relative efficacy of fiscal and monetary policy has been studied extensively. Friedman and Meiselman (1963), Ansari (1996), Reynolds (2000, 2001), Chari, et al. (1991, 1998), Schmitt and Uribe (2001a), Shapiro and Watson (1988), Blanchard and Perroti (1996), Christiano, et al. (1996), Chari and Kehoe (1998), Kim (1997), Chowdhury (1986, 1988), Chowdhury, et al. (1986), Weeks (1999), Feldstein (2002) and Cardia (1991) have examined the impact of fiscal and monetary policies on various economic aggregates. However, the bulk of theoretical and empirical research has not reached on conclusion concerning the relative power of fiscal and monetary policy to effect economic growth. Some researchers find support for the monetarist view, which suggests that monetary policy generally has a greater impact on economic growth and dominates fiscal policy in terms of its impact on investment and growth. [Friedman and Meiselman (1963); Ajaye (1974); Elliot (1975); Batten and Hafer (1983)], while other argued that fiscal stimulates are crucial for economic growth. [Chowdhury (1986); Olaloye and Ikhide (1995)], On the other hand, according to Cardia (1991) macroeconomic activities are largely explained by some other variables. The experiment of 1970s clearly demonstrates that a policy mix produced only stagflation. Some economist took keen interest in money by combining Keynesian neoclassical mixture which is called the “funnel” theory by James Tobin. The argument was that tax rate and money growth simultaneously leads to stagflation thus the Government could choose either fiscal or monetary policy stimulus which will enhance growth. [Reynolds (2001)].

Globally increasing income disparity, both across and within countries, suggests attention be paid to the role of fiscal policy in mitigating the problem. However, conventional wisdom suggests this can be achieved only at the cost of economic efficiency. This suggests fiscal policy has two incompatible major, long-term targets: economic growth and income equality. Thus economic growth, income inequality and fiscal policy variables are neither independent nor separately determinable. The implication is that it is essential to determine empirically the impact of fiscal policy on economic growth and income inequality and to do so in a way that allows for their interdependence. Consequently a conceptual framework is developed in which economic growth, income inequality and fiscal policy are interdependently determined. Within this framework, and based on a large body of empirical research, a system of simultaneous equations (SSEs) is constructed, with each endogenous variable treated as a function of the other endogenous variables, and also as a set of controlled variables taken from the theoretical and empirical literature. The following six hypotheses are developed from the literature in such a way that they can be parameterized and tested as individual system coefficients of the SSEs. The first hypothesis is that redistributive government expenditures involve a trade-off between economic growth (efficiency) and income equality (equity). The second hypothesis is that direct taxation receipts reduce income inequality, while indirect taxation receipts and non-redistributive expenditures increase income inequality. Within hypothesis 3, redistributive government expenditures are assumed to largely reduce income inequality when they are financed by direct taxes rather than by debt. Hypothesis 4 posits that non-redistributive expenditures reduce economic growth when they are financed by direct taxes rather than by debt. Outside the policy arena, hypothesis 5 is that income inequality reduces economic growth, while hypothesis 6 is that economic growth reduces income inequality. The SSEs are then specified as an empirically measurable simultaneous equations model (SEM), taking country- and time-specific unobservable factors into account. The SEM is estimated using the three-stage least-squares method (3SLS) to test the validity of the hypotheses using the three-year averages of data for 1995–2015 for a balance panel of 19 high-income OECD countries. A reduced-form version using a structural vector autoregressive (SVAR) model and a structural vector error correction (SVEC) model is also estimated using country-specific annual time series data from Australia and Sri Lanka for 1965–2014 and 1981–2013 respectively. A small SVAR model for an open economy is constructed for contemporaneous identification. Based on evidence of one cointegrating vector among the variables, a SVEC model is specified for the long run and is estimated to examine the impact of three permanent fiscal shocks (i.e. direct and indirect taxation receipts and government expenditure) on aggregate output and income inequality. Estimation of the SEM provides statistically significance evidence for all except the first and fifth hypotheses. An increase in redistributive expenditures reduces income inequality but is without a statistically significant impact on economic growth. The total net effect of direct taxation receipts, indirect taxation receipts and non-redistributive expenditures on income inequality is positive: increases inequality. Financing non-redistributive expenditures by debt is less harmful for economic growth than financing them by direct taxes, while lowering non-redistributive expenditures increases economic growth and decreases income inequality. The Australian SVEC model shows that an increase in direct taxation receipts permanently reduces per capita real GDP but has no statistically significant impact on income inequality. Conversely, an increase in deficit-financed government expenditures does not affect per capita real GDP but permanently reduces income inequality. An increase in indirect taxation receipts permanently increases income inequality, while the adverse effect of indirect taxation receipts on income inequality is greater than the redistributive effect of government expenditure. The Sri Lankan SVEC model shows that an increase in deficit-financed government expenditures permanently reduces both income inequality and per capita real GDP. An increase in indirect taxation receipts permanently increases income inequality. However, indirect taxation receipts have a statistically significant positive impact on long-run per capita real GDP. From these results a range of fiscal policy implications are drawn. For the SEM model this includes increasing redistributive expenditures financed by direct taxes to reduce income inequality, while cutting non-redistributive expenditures to help achieve both efficiency and equity objectives. The SVEC models imply that Australian fiscal policy did little to either influence the efficiency–equity trade-off or ameliorate its effects in the long run, while for Sri Lanka continued reliance on indirect taxes exacerbates equity problems.

Fiscal and monetary policy plays a vital role in macroeconomic stability. The Keynesians have emphasized the fiscal policy whereas the Monetarists supported interventions under monetary policy. In fact, these policies are interrelated and influence each other. The expansionary fiscal policy overheats the economy and reduce the effectiveness of monetary policy. The use of the appropriate mix of tools under fiscal and monetary policy is of immense importance for economic stability under country specific economic conditions. Therefore, the instant study was meant to look at the effectiveness of monetary and fiscal policy instruments in stabilization of Pakistan’s economy. The data was collected from secondary sources of Government of Pakistan from 1986 to 2022. The government expenditure was analyzed to be a proxy for fiscal policy whereas money supply for monetary policy. The study employed Impulse Response Function (IRF) and Variance Decomposition (VDC) in Vector Autoregressive (VAR) Model. The findings of IRF confirmed the impact of money supply on economic growth in Pakistan. At first, the money supply affected the GDP negatively but after 3rd year, its impact was changed to be positive and it was rising sharply. It indicated that the expansionary monetary policy was effective in the medium and long run in Pakistan. It was concluded that the fiscal policy appeared to be relatively more effective for its contribution towards economic growth as compared with monetary policy.

This work examined the comparative impact of fiscal policy and monetary policy on economic growth in Nigeria over the period 1981 to 2021 using annual time series data on real gross domestic product, broad money supply, government expenditure, total government revenue, and interest rate (lending rate). The objectives are to determine whether the fiscal policy or the monetary policy impacts more on economic growth in Nigeria and to ascertain the causality relationship between fiscal policy, monetary policy and economic growth in Nigeria over the period. The study employed ARDL Bounds Testing methodology in determining whether long run relationship exists between fiscal policy (proxy government expenditure and total government revenue), monetary policy (proxy broad money supply and interest rate (lending rate) and real gross domestic product. The result indicated that broad money supply representing monetary policy has positive relationship with and statistically significant impact on economic growth in Nigeria over the study period as indicated by its t-statistic and probability values of 6.436365 and 0.0000 respectively. Fiscal policy variable (government expenditure), on the other hand, has negative relationship with economic growth and statistically significant impact on economic growth in Nigeria as indicated by its t-statistic and probability values of -2.427968 and 0.0234 respectively. From the result, a change in money supply (monetary policy) affects economic growth positively while a change in Fiscal policy variable (government expenditure) affects economic growth negatively. Besides, the coefficient of monetary policy (0.457048) is greater than fiscal policy coefficient (-0.300554) and implies that monetary policy impacts more than fiscal policy impacts on economic growth in Nigeria. Therefore monetary policy does impact more than Fiscal policy on economic growth in Nigeria over the period studied. The result further indicated that there is no significant causality relationship between fiscal policy, monetary policy and economic growth in Nigeria over the period covered as indicated by the probability values of both fiscal and monetary policy variables employed and economic growth. The study therefore recommends that policy makers should focus more on monetary policy than fiscal policy so as to enhance economic growth since monetary policy has more concern with economic growth than fiscal policy. Keywords: Economic growth, fiscal policy, monetary policy, ARDL, Bound Test, Causality, Nigeria.

An on-going period of secular stagnation in advanced economies has brought down interest rates, growth rates and inflation. Due to the relatively larger fall in interest rates, the differential between the interest rate paid on government debt and the output growth rate (IRGD) became lower and has even turned negative in most advanced economies. In such an environment, public debt may come at much lower (or even no) cost. Thus, if this pattern remains stable, it has important implications on the role of fiscal policy. Against this background, this paper discusses relevant long-term trends in Europe and aims to explain the currently low IRGD. Furthermore, it investigates possible future IRGD paths and its consequences for fiscal policy.