Effects Of Budget Deficits Research Articles

The Effect of Budget Deficits on Stock Market Returns in Emerging Markets: A Panel VAR Analysis

This study examines the impact of fiscal deficits on stock returns. The sample covers emerging markets for the period 2016Q1-2021Q4. The analysis results using panel vector autoregression (PVAR) and Granger causality tests indicate that fiscal deficits cause stock returns. These results are confirmed for countries with low and medium levels of financial development and for European countries. However, in countries with high levels of financial development such as the BRICS and ASEAN countries, no effect is observed. It is also found that this effect disappears during the COVID-19 pandemic. The results of the study question the strong form of the efficient market hypothesis (EMH). According to the EMH, stock prices should fully reflect all available information. However, the impact of fiscal deficits on stock returns in low- and middle-income countries and European countries suggests that market participants may not fully reflect this information, addressing the existence possibility of markets that are not efficient in the strong form.

Effects of Budget Deficits on Developing and Under-resourced Economies: A Case Study Approach

Effects of Budget Deficits on Developing and Under-resourced Economies: A Case Study Approach

Empirical Study of Ricardian Equivalence Hypothesis in Indonesia: The Effect of Budget Deficit on Public Consumption in 1990-2018

Fiscal policy remains a central tool to boost the economy. Indonesia has implemented a deficit fiscal policy for the budget deficit, but Indonesia has not achieved the economic growth target. This reality shows that there is a gap between policy and policy outcomes. This research aims to prove the existence of the Ricardian Equivalence Hypothesis (REH), namely whether the fiscal policy, in this case, the budget deficit, affects public consumption. In addition to analyzing gross domestic product (PDB) as a measure of revenue, government debt, and budget deficits, researchers added variable deposit rates as one of the monetary policy instruments. The research employs Adaptive Expectation Model analysis that shows that in the short and long term, only variable deposit rates had a significant effect on public consumption, meaning that other variables such as GDP, government debt, and budget deficits had no impact on public consumption in Indonesia for 1990-2018 period. Thus, this study validates the existence of Short Ricaermc both in the short and long term. With this result, the government must change the deficit policy strategy so that the results of productive spending can be enjoyed directly by the people. Some policies that should to maintain interest rates, not do too much debt, develop the country's industry, and country's deficit budgets to things that directly support the economy Keywords: fiscal policy, budget deficit, Ricardian Equivalence Hypothesis, public consumption, Adaptive Expectation ModelJEL Clasification : E2, E62, H62

RICARDIAN EQUIVALENCE IN INDONESIA

Expansionary Fiscal Policy in the form of Deficit Fiscal is still being debated due to differences in views regarding the effect of budget deficits. The Ricardian Equivalence disciple argues that Deficit Fiscal Policy has a neutral impact on consumption. In contrast, Non-Ricardians (Keynesian and Neoclassical) argue that Budget Deficit Policy affects Private Consumption. Government policies affect private consumption through deficit fiscal policies such as budget deficits, government spending, taxes, and government debt. This study analyzes the effect of the fiscal deficit on consumption and observes the existence of the Ricardian Equivalence View in Indonesia. The estimation model used is the Vector Error Correction Model (VECM) through IRF and VD testing with time series data from 1980-2018. The results showed that the Budget Deficit Policy had a significant positive effect on private consumption, where the Fiscal Deficit shock was responded positively by Private Consumption. So that the Ricardian view does not apply in Indonesia and is more inclined to the Keynesian view. The positive response continues in the long term permanently, where 58.42% of the variation in the formation of the Private Consumption indicator (in period 10), is a Budget Deficit.

Triple Deficits and Economic Growth in Kenya

The objective of this study was to determine the effect of triple deficits on economic growth in Kenya. The specific objectives of the study were: to establish the effect of budget deficits, current account deficits and savings investments deficits on economic growth in Kenya. Persistent deficits have been of great concern because of the internal and external vulnerabilities they pose to the Kenyan economy. The study was based on the Keynesian theory, Thirlwall’s theory, and endogenous growth model theory. Annual data ranging from the year 1990 to 2018 was used. The autoregressive distributed lag (ARDL) and error correction model (ECM) were used to establish the significance and impact of the variables on economic growth in Kenya in the short and long run. The research established that budget deficits had a significant effect on economic growth in the long run while current account deficits had a significant effect on economic growth in the short run. The study recommends adoption of macroeconomic policies that aim at reducing budget and current account deficits and encourage greater discipline to ensure optimal use of funds into productive sectors.

MACROECONOMIC EFFECTS OF BUDGET DEFICIT IN NIGERIA

This study probed the macroeconomic effects of budget deficit in Nigeria. Specifically, it seeks to probe the effect of budget deficit on private investment and public investment in Nigeria by adopting the ADF unit root test and ARDL model, Granger Causality test and the short-run diagnostics and stability using annual time series data covering 37 years from 1981 to 2019. The variables employed include – Growth rate of real gross domestic product, private investment (Gross Fixed Capital Formation) as a percentage of GDP, public investment measured as ratio government capital expenditure to GDP, budget deficit, money supply measured as ratio of GDP, inflation rate measured by annual year-on-year inflation rate, interest rate, labour force participation rate. The research findings admitted that, budget deficit have positive and significant impact on economic growth in Nigeria. Therefore, government budget deficit has no crowding out effect on investment. The study also reveals that budget deficit has negative and insignificant impact on private investment in Nigeria. In addition, further investigation shows budget deficit have positive and significant impact on public investment in Nigeria. Also, the study asserts that there is unidirectional causality running from budget deficit to economic growth, private investment and public investment. Based on the research findings of this study, Government must ensure and maintain strong fiscal discipline without compromising the wellbeing of the citizenry by allocating budget spending to sectors that can translate the deficit into high economic growth both in the short and long runs. Furthermore, budget deficit financing in Nigeria should be focused on the productive sectors of the economy. This is because deficit financing has merely resulted in economic instability indicating that sound policies are needed to achieve economic stability in Nigeria.
 
 JEL: E02, H61, E22
 
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An investigation into the effect of budget deficit on the economic performance of Zimbabwe

ABSTRACT The study investigated the impact of budget deficit on the economic performance of Zimbabwe for the period 2000–16. Using secondary data sourced from the International Monetary Fund (IMF), Zimbabwe National Statistics Agents (ZIMSTATS), World Bank and the Reserve Bank of Zimbabwe (RBZ) websites, the study estimated the relationship between budget deficit and economic performance using ordinary least squares (OLS) methods. The estimated results revealed a negative and significant relationship between budget deficit and economic performance in Zimbabwe. The study inferred that Zimbabwe’s huge budget deficit could be driven by recurrent expenditure such as salaries. We recommend the need for the government to have fiscal discipline and to channel resources towards the productive sectors of the economy such as capital projects for long term development.

The Effect of Budget Deficit on the Economy of Jordan

This paper describes the impact of budget deficit on the Jordanian economy for the period (2010 –2019) where budget deficit and inflation are explanatory variables and economic growth is the affectedvariable. This research concentrates on analyzing theoretical and empirical literature reviews to show theeffects of budget deficit on economic growth and explaining this effect for this period using the Autoregressivedistributed lag (ARDL) method in Eviews program. The results of this research show that budget deficitcalculated as a percentage of GDP and inflation rate have insignificant effects on the Jordanian economy for theperiod (2010 – 2019). This paper concludes with a recommendation that, apart from budget deficit and inflationrate, other variables that affect the economy exist.

The effect of budget deficit on economic growth in Nigeria

The study examined budget deficit and economic growth in Nigeria. It specifically investigated the relationship between excess public expenditure, public revenue reduction, inflation rate, unemployment rate and real gross domestic product of Nigeria. This study adopted ex-post facto research design. Relevant data regarding the variables under-study were extracted from the Central Bank of Nigeria (CBN) statistical bulletin. The study period covered thirty-one (10) years spanning from 2009 to 2019, while error correction model was used to analyze the data. The findings revealed among other things that; there was presence of co-integration (long-run relationship) among the variables in the model, excess public expenditure and public revenue reduction has significant relationship with economic growth of Nigeria, while inflation rate and employment rate does not any positive relationship with economic growth of the country in the long run. The study therefore concluded that there is significant relationship between excess public expenditure and economic growth of Nigeria, depending on the variable of interest. Likewise, the study recommended among other things that government should ensure efficiency and effectiveness in the public financial management due to the insignificant influence of inflation rate on economic growth both in the long run and short run which is a pure indication of poor public financial management in the country. Also, the component governments in Nigeria should reduce it public borrowing as it has a significant inverse effect on the economic growth of the country in the long run.

The Effect of Budget Deficit on Current Account Deficit in Ethiopia: Investigating the Twin Deficits Hypothesis

This study investigated the relationship between government budget deficit and current account deficit in Ethiopia using annual data spanning the period 1976-2015. The analysis is based on a vector error correction model. The methodology of the study begins with Augmented Dickey-Fuller stationary tests of the data and the Johansen co-integration rank test that revealed current account, budget deficit, real gross domestic product and real effective exchange rate to be co-integrated with two co-integrated relationship and thus share long-run equilibrium relationships. Empirical result from the vector error correction model (VECM) suggests that budget deficit is negatively related with the current account deficit, though statistically insignificant. Despite the VECM result, the outcome of the Granger causality test reveals the existence of bi-directional causality between current account deficit and government budget deficit at 5% level. Consequently, the major policy implication of this study is adoption of sound economic policies which plays a pivotal role at boosting the internal government revenue and the export sector by taking the macroeconomic realities of the country into account.

EFFECT OF A BUDGET DEFICIT ON INFLATION RATE IN VIETNAM

<p>In recent years, Vietnam has achieved high economic growth rate so inflation has become a noticeable problem. The relationship between state budget deficit and inflation is a two-way dialectical relationship. However, within the limit of this article, the author only studies one-way relationship, the effect of budget deficit on inflation rate in Vietnam. Prolonged budget deficit and the remediation of the state budget deficit by different methods have affected the inflation rate on different degrees. This effect is analyzed by many approaches, both quantitative and qualitative, and includes five approaches: impact of fiscal policy inflation, impact of the state budget deficit level on inflation, impact of budget deficit funding on inflation, independence of monetary policy and its effect on inflation, effect of public expenditure on inflation.</p>

Budget Deficits and Economic Growth: A Vector Error Correction Modelling of South Africa

The primary motivation behind this study was to explore the consequential effects of budget deficit on South Africa`s economic growth. Six variables were used, namely: real GDP, budget deficit, real interest rate, labour, gross fixed capital formation and unemployment. The Vector Error Correction Model (VECM) was used to estimate the long-run equation and also measure the correction from disequilibrium of preceding periods. Using annual time series data spanning the period 1985 to 2015, empirical evidence from the study revealed that budget deficits and economic growth are inversely related. It was therefore concluded that high levels of budget deficit in South Africa have detrimental effects on the growth of the economy. The estimate of the speed of adjustment coefficient found in this study revealed that about 29 per cent of the variation in GDP from its equilibrium level is corrected within one year. The results obtained in this study are favourably similar to those in the literature and are also sustained by previous studies.

Budget Deficits and Economic Growth: A Vector Error Correction Modelling of South Africa

The primary motivation behind this study was to explore the consequential effects of budget deficit on South Africa`s economic growth. Six variables were used, namely: real GDP, budget deficit, real interest rate, labour, gross fixed capital formation and unemployment. The Vector Error Correction Model (VECM) was used to estimate the long-run equation and also measure the correction from disequilibrium of preceding periods. Using annual time series data spanning the period 1985 to 2015, empirical evidence from the study revealed that budget deficits and economic growth are inversely related. It was therefore concluded that high levels of budget deficit in South Africa have detrimental effects on the growth of the economy. The estimate of the speed of adjustment coefficient found in this study revealed that about 29 per cent of the variation in GDP from its equilibrium level is corrected within one year. The results obtained in this study are favourably similar to those in the literature and are also sustained by previous studies.

Tying Up the Loose Ends: The Determinants of Active Labour Market Policy in the Western Countries 1985-2013

Knowledge on the determinants of Active Labour Market Policy (ALMP) spending accumulated during the 2000s. Despite these advances, the current research lacks a systematic approach to the relevant determinants. This article fills the research gaps by analysing simultaneously the 14 most frequently used determinants for the first time. In addition to these variables, this study introduces a new factor, namely the impact of economic crises. Through the analysis of the longest data period yet investigated of 20 Western countries and a comparison of methodological alternatives, this study both challenges and reinforces previous findings, as well as produces new ones. For example, it is the first investigation to reveal the positive effect of government indebtedness and economic crises on ALMP expenditure. However, the rivalry between the “usual suspects” continues, as the negative effects of budget deficits, foreign trade, and population ageing, and the positive effects of trade union density and GDP growth, were rediscovered in this analysis.

The Effects of Budget Deficit on Economic Growth and Development: The Experience of Ghana (1994 – 2014)

This paper surveyed and access the empirical literature on the sources of budget deficit and their policy implications on the processes of sustainable economic growth and development. The Ghanaian experience and evidence shows that the budget is not projected to be on a sustainable growth path under current socio-economic and political (governance) policies; the budget is projected to increase more quickly than the country’s Gross Domestic Product (GDP). The modeling of underlying variables (Inflation, Gross Domestic Product, Real Interest Rate, Gross Investment, Real Exchange Rate) to estimate the quantitative effect of continued budget deficit on the rate of economic growth, governance and development. The sample used for this study is based on panel data-sets between 1994 and 2014. Results obtained from the analysis pointed to an adverse impact of continued budget deficit on the processes of economic growth and development. The paper recommends the adoption and implementation of policies that could reverse the un-sustained budget deficit leading to crowding out of the private investment but rather, put the economic on a sustained path of growth and, development in the medium to long term.

The effect of budget deficit on interest rates in the countries of sub-Saharan Africa: A panel VAR approach

The 2007-2008 global economic crisis and the recent effects of declining global oil prices has led most countries in sub-Saharan Africa to respond by borrowing massively from both domestic and international market to fund the day to day running of the home country. The effects of borrowing and increased deficit financing raises the age old question of the linkage between government deficits financing, rising domestic interest rates and contracting investment. Notable amongst the issue raised by increasing deficit financing is the issue of government borrowing crowding out private sector investment which manifest in the form of a short fall in private sector’s purchase of government bond below the anticipated raise in government deficit financing resulting in more borrowing on the part of government and less money available for financing private projects. Theories abound in the literature that tried to establish the linkage between budget deficit and interest rate, however, there is no consensus on the relationship between them and on the magnitude of the deficit financing that will ultimately trigger a rise in domestic interest rates. This study, therefore, examines the effect of government deficit financing on interest rates. The study applied panel Vector Auto regression techniques (PVAR) on dataset collected from 18 countries across Sub-Saharan Africa (SSA) over the period 2000 to 2014. The result obtained analyzing the impulse function (IRF), the variance decomposition (VDC) and the VAR causality show the response of interest rate to rising government fiscal deficits to be slow initially negating the conventional Keynesian proposition which states that rising government deficit reduces the stock of loanable funds and consequently crowds out private sector investment. Subsequently, the result shows interest rate response to government fiscal deficit to be neutral or insensitive. These findings lend credence to the Ricardian Equivalence theory, which emphasizes the neutrality of budget deficit on interest rate. In addition, interest rate responded positively to exchange rate, inflation, and money supply. The empirical evidence suggest that Sub-Saharan African economies need not bother about the effects of rising government borrowing on interest rates provided they stay within the accepted limit of debt sustainability ratio.

Political Influence on Fiscal and Monetary Policy in Sub-Saharan Africa

This article examines the extent to which political variables affect budget deficits, money growth and inflation in Sub-Saharan Africa (SSA). Using the Arellano–Bond dynamic panel data analysis on 36 SSA countries from 1980 to 2010, we first characterise the impact of presidential elections on two policy variables: government budget deficits and money growth. We then examine the impact of government budget deficits and money growth on inflation, while taking account of any direct political pressure via presidential elections. Importantly, we show that country groups, based on the level of income, are important in teasing out the varying effects of budget deficits and elections, finding evidence of political budget cycles and political monetary cycles in the middle-income countries. We also characterise whether a country is part of a fixed-exchange rate regime, showing that this limits electoral pressure on the monetary policy variable. We examine the competitiveness of elections by whether they are multiparty or single-party elections and by whether there is an incumbent candidate running for re-election. When we examine the feed-on effects on inflation, there is little indication that the election pressures on either fiscal or monetary variables become inflationary. There is evidence, however, of money growth and budget deficits being directly inflationary, particularly in the low-income countries.

Effect of Budget Deficit on Trade Deficit in Pakistan (A Time Series Analysis)

The study examined the relationship between Budget deficit and Trade deficit for the economy of Pakistan. Time series data was used from the period 1972 to 2011. Augmented Dickey Fuller Test used to check the stationary of the variables and found that all variables were stationary at first difference. Johansen Co-integration used to find the long relationship and found that budget deficit has positive effect on trade deficit in long run. Error correction model indicated the convergence or divergence of the economy in short run to long run. The ECM results showed that 30.88% convergence occur within year. Granger causality test used to check the direction of causality between the budget deficit and trade deficit and results was indicated that there is bi-directional between the variables.

Does budget deficit affect short and long term interest rates differently?

This study examined the differential impact of budget deficit on short and long term interest rates in Nigeria for the period 1970 to 2011. Specifically, this study addressed three issues: the causal nexus between budget deficit and interest rates; the effect of budget deficit on interest rates and the response of interest rates to shocks on budget deficit. Three models were estimated. Firstly, the causality estimate showed no evidence of causation between budget deficit and interest rates. Secondly, the regression estimate revealed that budget deficit had an insignificant effect on interest rates and thirdly, the impulse response analysis showed that shocks to budget deficit causes an immediate positive rise in long term interest rate while the positive response of the short term interest rates was delayed till the sixth year. Thus, this study concluded that, the question of whether budget deficit affects short and long term interest rates differently depends on methodology adopted.

Effects of Budget Deficits on Inflation, Economic Growth and Interest Rates: Applications of Turkey in 1980-2013 Period

Effects of Budget Deficits on Inflation, Economic Growth and Interest Rates: Applications of Turkey in 1980-2013 Period