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Abstract
Two challenges in the literature have inspired this paper. First, the highly contradictory puzzle of debates on the “public budget–economic growth” correlation, explainable in great measure by the inadequacy of involved modeling tools (assumptions and specifications) with studied samples. Regarding this issue, the paper proposes three temporal scales of analysis: (1) the global historical trajectory of the modern society, concerning which the Wagner–Kaldor theorem has a leading explicative position; (2) the given structural state–society relationship, for which Barro–Armey–Rahn–Scully (BARS), Laffer in narrower sense (LINS), and the public budget balance restriction (BBR) curves are more suited; and (3) the short–medium horizon, where the Keynesian and post-Keynesian framework remains relevant. Another starting point of this paper refers to the second scale. While the BARS and LINS curves were extendedly examined, the BBR one benefited of attention only during the last period in the context of the sovereign debt crisis. Besides, all these functions were studied separately. Since in the real economy they interact continuously, we integrate BARS, LINS, and BBR curves into a unitary model with a “compatibility restriction” as technical solution. Data for an emergent medium-sized EU country (Romanian case study) illustrate this approach.
Highlights
The literature on government finances has gravitated toward the following issues: (1) the impact of public budget expenditures on the degree of society’s general development, especially the productive outcome of the economy; (2) the collected taxes as the most important component of the public budget’s income; and (3) the capacity of government to obtain credit from financial markets as a complementary resource for its own expenses.The corresponding literature is characterized by strikingly contradictory viewpoints
We introduced a compatibility restriction derived from the unitary framework, within which these functions intimately interact under a given structural state–society relationship
The pair estimators c(1)–c(2), c(5)–c(6), and c(8)–c(9) have the expected algebraic signs in both procedures, which means that all the components of the BARS, Laffer in narrower sense (LINS), and budget balance restriction (BBR) functions display U-shaped slopes
Summary
The literature on government finances has gravitated toward the following issues: (1) the impact of public budget expenditures on the degree of society’s general development, especially the productive outcome of the economy; (2) the collected taxes as the most important component of the public budget’s income; and (3) the capacity of government to obtain credit from financial markets as a complementary resource for its own expenses.The corresponding literature is characterized by strikingly contradictory viewpoints. Some authors have commented that government expenditure is almost neutrally related to aggregate output: besides the famous Harberger (1964, 2003) conjecture (Engen and Skinner 1996; Mark et al 1997; Mendoza et al 1997; Wasylenko 1997; Hines 2002; Xing 2011). Dobrescu E conomic Structures (2018) 7:19 on economic growth predominate, and such a role is attributed to the so-called productive items of the public budget (Kneller et al 1999); notably, Asimakopoulos et al (2016) included them into their macroeconomic production function. Mertens and Ravn (2013) identified immediate effects on output induced by changes in average tax rates. Engen and Skinner (1996) posited, “the tax level is likely to exert a modest, but cumulatively important, influence on long-term growth rates. Lee and Gordon (2005) found that the corporate tax rate is negatively correlated with economic growth, but other tax variables are not significantly associated
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