The Impact of Fiscal Policy on Economic Growth in Lao PDR

Abstract

There has been various studies research on the Impact of the Fiscal Policy on Economic Growth by testing the Wagner’s Law and Keynes theory. This study holds two objectives, the first objective is to review a performance of the implementation government expenditure, and second objective is to test on the government expenditure contributes to the economic growth in the Lao PDR. To reach these two objectives, this study applies two methodologies. The first methodology is descriptive approach to respond for the first objective, and second methodology is bound testing approach and vector error correction approach to respond for second. This study is applied for time series data in terms of annual data from 1981 to 2014 in all models. The source of the data is mostly the website of the Asia Development Bank (ADB) year 2016. The results of the first methodology shows that the performance of the government expenditure continued increase rapidly, especially in 1986, 1997 and policy changed in 2012-2013 in terms of current expenditure for salary and capital expenditure directly affected to real Gross Domestic Products growth. The results of the second methodology shows that the Keynes theory and Wagner’s Law are significant and satisfied for the Lao economy in the long run. It meant that government expenditure has directly contributed RGDP, and vice versa. However, in the short run are not significant and unsatisfied in any lag.