Government Budget Deficits Research Articles

The relationship between the current operations account deficit and the state budget deficit in Ukraine: an empirical analysis

The purpose of this research is to investigate the causal relationship between the current account deficit (CAD) and the government budget deficit (GBD) in Ukraine using an empirical analysis.The authors employ a quantitative approach using quarterly data from 2002 to 2018. They first de-seasonalize the data using a moving average method to account for seasonal fluctuations. Then, they apply the Pearson correlation test to examine the correlation between the CAD and the GBD.The findings of the study indicate a positive correlation between the CAD and the GBD in Ukraine. The Pearson correlation coefficient is 0.4, suggesting a moderate positive relationship between the two variables. However, the correlation test does not establish causality.The results of this research can be used to inform policy decisions aimed at addressing the twin deficits in Ukraine. The authors suggest that policymakers should consider implementing fiscal consolidation measures to reduce the GBD, which could potentially lead to a narrowing of the CAD.The study provides evidence of a positive correlation between the CAD and the GBD in Ukraine. While causality cannot be determined from the correlation analysis, the findings suggest that there may be a link between the two deficits. Further research is needed to explore the causal relationship between the CAD and the GBD in more depth.● The study focuses on the Ukrainian economy, but the findings may have implications for other countries facing similar challenges.● The authors acknowledge that other factors may also influence the CAD and the GBD, and they call for further research to investigate these factors.● The study is limited by the availability of data and the use of a relatively short period.Overall, the research provides a valuable contribution to understanding the relationship between the CAD and the GBD in Ukraine. The findings have implications for policymakers and researchers interested in addressing the twin deficits in Ukraine and other countries.

Forging support: when there is no alternative to ‘there is no alternative’

Abstract Whether fiscal austerity by governments is unpopular or not is much discussed in the literature. One line of research argues that consolidation has negative electoral effects, ranging from declines in politicians’ approval ratings to abstention by voters at elections. Another strand highlights that re-election chances are not harmed by the implementation of austerity and that some voters in fact support consolidation measures. Both sides are limited in at least two regards. First, they do not allow for the possibility that public opinion is shaped by the political discussion about government debts and budget deficits. Second, and relatedly, the literature is limited in its extent to which it considers heterogeneity in preference adaptation across income groups. This article contributes to these debates by bringing to bear insights from the literature on mass preference formation. In particular, I argue that a cross-party consensus on austerity leads voters to align their preferences with the consensus, increasingly demanding cuts to government spending. This adaptation is conditioned by income so that the preferences of those income groups that are the furthest away from the consensus adapt their fiscal preferences most. By including the discursive context of fiscal policy, this article helps explain how austerity can be made popular. Empirically, I test these expectations by matching citizen preferences with party positions on fiscal policy for 60 country years. The empirical results indeed demonstrate that even though low- and middle-income voters are least supportive of austerity, they adapt the most to the party consensus on austerity.

ANALISIS PENGARUH UTANG DOMESTIK DAN UTANG LUAR NEGERI TERHADAP PERTUMBUHAN EKONOMI DI INDONESIA PADA TAHUN 2014 - 2023

During the period of 2014-2023, Indonesia government set a target for average economic growth of 5.2% for 2014-2020 and 6% for 2020-2025. In order to achieve that, the fiscal policy adopted by the government is by utilizing debt. Based on Keynesian view, the government can incur debt to finance government budget deficits and stimulate economic growth. This research employs the ordinary least squares (OLS) method because it seeks to analyze the relationship between the variables of quarterly increase of GDP, quarterly increase of domestic debt growth, and quarterly foreign debt. Based on the estimation results of the model conducted in the research, the result show that the variables of quarterly domestic debt growth and quarterly foreign debt growth can only explain a 14.49% increase in quarterly GDP value. Simultaneously, domestic debt and foreign debt do not affect economic growth. Partially, an increase per quarter in domestic debt has a significant negative effect on the increase in quarterly GDP value, while an increase per quarter in foreign debt has a positive but not significant effect on the increase of quarterly GDP value.

Effects of Budget Deficit Financing on the Economy of Nigeria

The study investigated the effects of deficit financing on the Nigerian economy using data that covered 41 years (1981 to 2021). Real gross domestic product (RGDP) was the dependent variable, while government budget deficit financing disaggregated into different sources of budget deficit financing represented the explanatory variables. The ordinary least squares (OLS) regression method was used for the tests and analyses. Results established that both non-bank public sources of deficit financing and banking system sources of deficit financing had positive and significant effects on growth. However, non-bank public deficit financing positively led the Nigerian economy and was followed by banking system deficit financing. Both ways and means and external deficit financing sources were negative and insignificant in influencing the Nigerian economy. Ways and means were third while external deficit financing was fourth in descending order of influence on RGDP growth. The study further applied the Augmented Dickey-Fuller (ADF) approach to unit root tests and observed that the variables were integrated at both levels and first difference, leading to the application of the Autoregressive Distributed lag (ARDL) approach to data estimation. The ARDL bounds tests showed that the model specified for the study followed a long-run path and that a long-run relationship existed between the dependent variable and the explanatory variables. The estimation of the long-run and error correction estimation indicated that the independent variables had a time-varying effect on the real gross domestic product of Nigeria. That ARDL estimation of the error correction mechanism also showed that RGDP adjusted rapidly to short-run discrepancies in the long run. Finally, the error correction mechanism showed that external sources of budget deficit financing, non-banking system public deficit financing, ways and means source of deficit financing, gross capital formation, real interest rate and exchange rate, all had robust effects on growth, though with varying directions of influence. Based on the foregoing, the study has recommended deficit financing, more especially non-bank public deficit financing and banking system deficit financing as better options for attaining the much desired rapid and sustainable economic growth of Nigeria as they have been proven to be non-inflationary in practice compared to ways and means and external source of deficit financing over the years.

Economic impact of government health expenditure: An application of the computable general equilibrium model to the Iran.

Considering the increase in health expenses and the government's role in health financing, this study investigated the economic impact of increases in the share of the health sector in the government budget while taxes remain unchanged and government spending is fixed. The economic model used in this study was a macroeconomic Computable General Equilibrium (CGE) model. This model was calibrated using a 2011 Social Accounting Matrix (SAM) Of Iran. The CGE model was solved with non-linear programming using the General Algebraic Modeling System package, version 2.50. The effect of this simulation on the government budget deficit, the production of different sectors of the economy, and the employment rate was investigated. Based on our fundings the elasticity of substitution in the agricultural and industrial sectors is higher than in the health and service sector. Also, the biggest decrease in production occurred in the industry, agriculture, and service sectors, respectively. With the doubling of the share of government spending in the health sector, the employment rate of this sector has increased by 40.9%, but the highest decrease in the ignition rate is related to the service sectors (-2.7%), agriculture (-0.23%), and industry (-0.14%). Increasing the share of government spending in the health sector in comparison with other sectors of the economy, provided that government spending is maintained in general, leads to a decrease in production and economic welfare. It seems that the Iranian government should seek to increase the sources of health financing and the share of government expenditures in the health sector with other ways in order to improve the health level of the society and have a positive effect on other economic sectors.

Інфляція як мірило незалежності центральних банків

The aim of the article is to study the process of formation of the modern paradigm of independence of central banks, determine the role of inflation in it, outline the criteria for independence and determine the dynamics of legal indicators of autonomy of monetary institutions. It is noted that the impetus for changes in relations between governments and central banks of many industrialized countries was the episodes of high inflation in the 1970s. Awareness of the problem of the time discrepancy between the short-term perspective of political decisions and their long-term impact on the economy provoked institutional changes in the status of monetary institutions. They envisaged the prioritization of central banks’ activities to ensure a consistently low level of inflation and provide independence to achieve it. It is also noted that in countries with economies in transition, the tendency to separate central banks into an independent institution was implemented during the 1990s. The criteria for the independence of central banks are determined by legislation and their charters. These usually include the following: isolation of central bank leadership from political pressure; prohibition to give instructions to central banks in the conduct of monetary policy; a clearly defined purpose of monetary policy; restrictions on lending to government programs and budget deficits. In addition to the formally defined independence, there is also the actual independence of central banks, which is usually outlined through the index of management turnover of monetary institutions and its correlation with the inflation rate. But this does not take into account other (exogenous) factors that affect the inflation rate, which makes the studies less relevant. In addition, the construction of any indices includes an arbitrary weight value of each of them, which reflects the sensitivity of the results obtained depending on their composition. As noted in the study, instead of a static analysis of the indicators of independence of central banks, it is more expedient to determine their modification from the beginning of the formation of the modern paradigm of independence to the present day. The analysis showed that since the beginning of the 1970s, most of the countries studied have changed the rules prohibiting central banks from financing (in any form) the budget deficit. At the same time, obstacles to interference in monetary policy were established. This suggests that the change in these criteria had the greatest impact on the downward trend in the level and volatility of inflation in the period under study.

The macroeconomics of near zero growth of GDP in a world of geopolitical risks and conflicts

This paper offers an analysis of the macroeconomic conditions for near zero economic growth based on a demand-led growth model, and their implications in terms of paid employment, government finances, and the rate of profit. The main finding of the paper is that a level of net investment compatible with near zero growth would lead to a lower level of paid employment in terms of total hours worked. The effects on the distribution of work and the unemployment level would depend on changes to working time, whether in terms of average hours worked per annum, ages of entry into, and exit from, the work force. Furthermore, changes in working time would be achieved through social actions and legislation, rather than market mechanisms. A government budget deficit may well be required to underpin full employment and capacity utilisation, though there may be long-term limits on the use of budget deficits in a near zero growth context. Finally, a near zero growth rate would also mean a substantial lower rate of profit than hitherto.The implementation of these theoretical conditions require a level of cooperation between and within countries, which is much more difficult to reach in the presence of geopolitical risks and conflicts. Yet, there is no country secure from geopolitical risks and conflicts without an ecologically sustainable use of the natural resources. The theoretical conditions discussed in this paper could serve as “condiciones sine quibus non” to ecological sustainability, while navigating the complexities and uncertainties caused by the on-going conflicts and heightened geopolitical risks.

Global economic resilience: Analyzing the diverse impacts of the COVID‐19 pandemic on the US, Pakistan, and the world

The economic development of a state can be accurately characterized as the measurable changes in macroeconomic indicators that result in an increase in the overall production or output over a specific timeframe, in comparison to the previous period. Several key macroeconomic factors contribute to the advancement of economic growth. These factors include the industrial production, unemployment rate, business Confidence Index, government budget deficit, and the labor force participation rate. The study employed secondary data from January 2016 to August 2023, with a monthly frequency, to estimate the coefficients. The data encompassed the United States, Pakistan, and the rest of the world. The empirical findings indicate that there exists a negative relationship between equality and economic growth in the United States, Pakistan, and other countries worldwide. The findings demonstrate that the global pandemic has had a notable impact on the industrial production of the World, the United States, and Pakistan, with an initial increase followed by a gradual decline. The unemployment rates in the United States, Pakistan, and the rest of the world have experienced a substantial decline. Simultaneously, the rate of unemployment has witnessed a notable increase, resulting in significant and adverse effects on the respective economies. The decrease in the Business Confidence Index can be attributed to heightened levels of uncertainty, which in turn have had a detrimental impact on the gross domestic product of the United States, Pakistan, and other countries worldwide. The reduction in imports has resulted in a decrease in the government budget deficit, which has had a notable impact on the economy.

Government expenditure, budget deficit and shadow economy

ABSTRACT The shadow economy has emerged as a challenging issue for countries globally, particularly emerging markets. An increased budget deficit prevents the governments from using public expenditure to control the increased shadow economy. This paper examines the effect of government expenditure on the shadow economy and the moderating role of budget deficit affecting this impact for the ASEAN-7 countries from 1990 to 2019. We find that increased government spending is associated with an increased shadow economy in ASEAN countries. Interestingly, the effects of government expenditure on the shadow economy intensify with increased budget deficit in the short and long term.

Macroeconomic Variables Effect on 10-Year Tenor Government Bonds Yield

This study aims to analyze the effect of macroeconomic conditions on the yield of 10-year government bonds. The macroeconomic indicators studied were the consumer price index, BI 7 days reverse repo rate, foreign exchange reserves, Indo CDS 5 years, and the Government Budget Deficit from January 2009 to December 2019. This research uses the Vector Error Correction Model (VECM) method because there is cointegration between variables, indicated by Trace Statistics and Max-Eigenvalue statistics, which are greater than Critical Value. The analysis results show that the Consumer Price Index (CPI) and the Government Budget Deficit positively influence the 10-year tenor government bond yield. In contrast, the 5-year Indo CDS, BI 7 days reverse repo rate, and Foreign Exchange Reserves negatively affect the 10-tenor government bond yield year. The policy implications for the yield of 10-year government bonds can be beneficial and useful for the government as the economic authority in issuing bonds, the regulator (Bank Indonesia), and helping investors to develop investment strategies in government bonds by continuously monitoring and predicting the direction of movement of these variables so that they can creating an optimal portfolio of government bonds.

The Determinants of East African Economic Growth

This paper focuses on examining the effect of government external debt on economic growth, investigating the effect of interest rate on economic growth, establishing the effect of government domestic debt on economic growth, and examining the effect of budget deficit on economic growth. The study was carried out for three East African countries, Kenya, Tanzania and Uganda, over the study period of 1980-2019. Autoregressive Distributed Lag (ADL) Panel Approach was used to specifically establish the effect of government external debt, interest rate, government domestic debt, and budget deficit on economic growth. Pooled Mean Estimator (PMG) was used to estimate both the general and full sample model. The results showed that in the long run, government external debt and interest rate had negative but not statistically significant effect on economic growth for the three countries. On the other hand, government domestic debt and budget deficit had positive effect but not statistically significant effect on economic growth. The results of the short term showed that government external debt, government domestic debt, and budget deficit had a negative but not statistically significant effect on economic growth for the three countries, while interest rate had a negative and statistically significant effect on economic growth for the three countries. Firstly, in order to achieve a positive economic growth, it is recommended that the East African countries, Kenya, Tanzania and Uganda, should design and implement debt, interest rates, and budget deficit policies to fit and align with other macroeconomics policies. Secondly, they should restrain their expenditure to sustainable levels to maintain a balanced if not surplus budget. Thirdly, they should endeavor to put economic and legal framework in place to eradicate corruption of public funds. Fourthly, they should design and implement policies to broaden tax base to support a balance budget. Fifthly, the governments should avoid a crowding through huge borrowings in the domestic market at the expense of the private sector.

The impact of inflation on macroeconomic instability in different countries

Within the framework of this article, the author sets himself the goal of analyzing the characteristics of inflation processes in different countries, as well as the impact of inflation on macroeconomic instability in Poland, Sweden and Russia. The author argues that minimizing the risk of inflation will help the country reach a new level of development and stabilize constant economic growth. In 1980–1990 Many countries began to move from a command economy to a market economy, and the listed countries were no exception. It is emphasized that the Polish economy in the 1990s was one of the weakest in the European zone, and there was macroeconomic instability in all its forms: shortages of goods, high inflation, unemployment, and government budget deficits. However, today Poland is a successful country, its GDP is growing every year, while inflation processes can be maintained at the proper level. The article analyzes the inflation rate in Poland at the end of the twentieth century, during the crisis period in 2008, and also highlights the main measures taken by the Polish government to reduce inflation rates and minimize possible risks. In addition, the author believes that today Sweden is a country with a developed economy and the most favorable living conditions for its population. Despite favorable living conditions for the population, Sweden faces both a risk of inflation and a risk of deflation, both of which contribute to macroeconomic instability in the country. With the collapse of the USSR, macroeconomic instability, according to the author, is constantly observed in the country. High levels of inflation, state budget deficits, and periodic declines in production have been observed in the country for 20 years. In the final part of the article, the author compares the inflation rates of the countries considered, and also formulates a conclusion regarding the experience of other countries in the fight against inflation.

Deficit Financing and Economic Growth: Empirical Evidence from Nigeria

The impact of deficit financing on economic growth has long been recognized in the extant literature given that this type of financing is germane to accelerated and sustainable economic growth. Yet, Nigeria did not seem to have utilized deficit financing proceeds to invest in those related infrastructural facilities that would generate income and augment domestic savings, thereby helping to make and sell quality products and services that are internationally competitive, and ultimately stimulate economic growth. Rather, the seemingly weak governance in the country engaged in massive misappropriation of public funds and outright corruption thereby exacerbating unemployment, insecurity, and widespread poverty both in the urban and rural areas of the country. The main aim of the study therefore was to investigate empirically the impact of deficit financing on economic growth in Nigeria for the period 1981 to 2019. Secondary data for the study were sourced from the Central Bank of Nigeria and the World Bank Global Development Index. The fully modified ordinary least squares methodology of the econometrics was employed to analyze the data of the study. The major findings of the study showed that the federal government domestic debt variable, the federal government budget deficit variable, the foreign exchange reserves variable, and the broad money supply variable exerted positive impacts on economic growth, while the external debt variable exerted a negative and insignificant impact on economic growth in Nigeria. The study therefore concluded that public borrowing in Nigeria can only induce rapid and sustainable economic growth only and if only borrowed funds are massively invested in related infrastructural facilities that would generate revenue which would augment domestic financial resources. Accordingly, the study recommended that the federal government of Nigeria should carefully study the state of its economy to enable it invest in those infrastructural facilities that are thought germane to the achievement of sustainable economic growth.

Comparative analysis of financing the government budget deficit through Islamic treasury bills and borrowing from the central bank

Comparative analysis of financing the government budget deficit through Islamic treasury bills and borrowing from the central bank

On the stability of a certain Keynes-Metzler‑Goodwin monetary growth model

The article has three aims. The first aim is to develop an improved version of the Keynes-Metzler-Goodwin (the KMG) monetary growth model originally presented and analysed in a series of publications by Carl Chiarella, Peter Flaschel and Willi Semler. The improvement of the model is obtained by modifying some of its equations in a way which ensures that they reflect real macroeconomic dependencies more properly. The equations that have been modified describe final demand expectations, determinants of production decisions, fixed capital accumulation, tax revenues, government budget deficit and money demand. The second aim is to transform the model into an intensive form described by seven non-linear differential equations and determine its unique steady state which shows proportions between variables on the balanced growth path. The third ultimate aim is to present a mathematical proof that the new improved version of the KMG model is locally asymptotically stable.

Effect of fiscal expansion on inflation during the period of unconventional monetary policy

Economic supply shocks and fiscal expansion coupled with monetary expansion are suspected causes of the rise in inflation that we observe in most of the developed and developing economies today. In this paper we look at the effect of the government budget deficit(surplus) or fiscal policy stance, and quantitative easing on inflation while controlling for economic shocks using the method of cointegration as we find data series in our model to be integrated of order one and having support of one cointegrating equation between the variables. Our analysis is performed using Federal Reserve monthly data from 1994 to 2022 using Two-Step Engle-Granger (1987) method and Fully Modified OLS by Phillips and Hansen (1990). We compare these models to Auto Regressive Distributed Lag model of Pesaran and Shin (1998) which allows for analysis irrespective of the order of integration to provide for more robustness regarding the estimated relationships in cases of misspecification of stationary properties in our time series. Both cointegrating models lend support to the initial postulated relationship where expansionary fiscal policy has significant positive impact on the price level during the long run but also enhances the effect of the Quantitative Easing on the price level as the interaction term between these variables is significant, indicating that during the periods of expansionary fiscal policy, expansionary monetary policy through Quantitative easing has bigger effect. Our analysis is performed controlling for effect of economic shocks and price of real exchange rate on the price level. Stability of the cointegration model tests reveal presence of structural breaks which when included in the cointegrating equation change the importance of the impact that fiscal stance has on inflation and reveal that inflation is mainly result of the expansion in central bank assets after 2008, which coincides with period of unconventional monetary policy

Značaj poreskih prihoda na volumen budžetskog deficita

The budget is a set of all planned revenues and expenditures of individuals and corporations, institutions, the state... for a certain time frame, usually per year. We will put emphasis on the government budget. In a situation where exactly these planned revenues are at a lower level compared to planned expenditures, a government budget deficit occurs. The big problem of the modern states is the chronic budget deficit. It arises in a situation where a negative gap between public revenues and expenditures appears every year for a long period of time. The so-called tax revenues have a huge importance in the public revenues of the budgets of modern states. In the paper itself, we will pay attention to tax revenues. We will show an empirical presentation of the trends in the structure of these revenues in countries with different levels of income per capita, we will analyze the impact of tax revenues on the level of the budget deficit. The structure of tax revenues largely depends on the level of development of that country's economy.

Spillover Effects of Digital Infrastructure and Financing

This article proposes a tax sharing scheme between governments and private sector investors of Information and Communications Technology (ICT) infrastructure. The current COVID-19 pandemic has not only emphasized the crucial need of ICT infrastructure development, but has also expanded government budget deficits in many countries. Therefore, participation from the private sectors is necessary to close the widening investment gap in ICT infrastructure. One of the measures to attract private sectors’ involvement in ICT infrastructure is by creating a steady stream of income for the investors. To ensure the success of the proposed financing scheme, this article also recommends the development of supporting hard and soft infrastructure as well as the digitalization of tax reporting systems.

CHANGE AND DEVELOPMENT IN THE PUBLIC DEBT STOCK STRUCTURE IN TURKEY: COVID-19 PANDEMIC PERIOD

Bu çalışmanın amacı, küresel boyutta ekonomik krize yol açan Covid-19 salgın döneminde Türkiye’nin kamu borç stok yapısını incelemektir. Çalışma, salgın döneminde kamu borç stok yapısındaki değişimi görebilmek ve salgın sonrası sürecin gelişimini değerlendirebilmek amacıyla 2018-2022 dönemini kapsamaktadır. Türkiye’de 2020 yılı Mart ayından itibaren kısa zamanda yayılan salgın aynı zamanda bir ekonomik krize dönüşmüştür. Bu kapsamda salgının hem toplumsal hem ekonomik etkilerini azaltmaya yönelik maliye politikası araçlarının etkin bir şekilde uygulanmasıyla, artan merkezi yönetim bütçe açığının finansmanı kamunun borçlanma ihtiyacını önemli ölçüde artırmıştır. Salgın ile birlikte bozulan mali disiplinin yanı sıra bozulan makroekonomik göstergeler, artan dolarizasyon sadece kamu borç stok büyüklüğünü artırmakla kalmamış aynı zamanda borç stok yapısında da ciddi bozulmalara yol açmıştır. Özellikle kamu borç stoku içinde TL cinsi değişken faizli ve döviz cinsi borçlanmanın payının artmakta olması Türk Lirasına (TL) olan güveni azaltmakta ve TL değer kaybetmektedir. Sonuçta, kamu borç stokunun faiz ve kur şoklarına karşı kırılganlığının ve maliyetinin artması etkin bir borç yönetim uygulanmasını engellemektedir.

The Impact of Defence Expenditures on Government Debt, Budget Deficit, and Current Account Deficit: Evidence from Developed and Developing Countries

Although there are many studies on the effect of defence expenditures, which have a significant share in government expenditures, on various macroeconomic variables, there are very few studies on their effects on government debt, budget deficit and current account deficit. In this paper, the effect of defence expenditures on government debt, budget deficit, and current account deficit is empirically analyzed by system GMM analysis employing annual data from 16 developed and 9 developing countries for the period 2000-2019. The findings of the paper show that defence expenditures are important factor to determine government debt, budget deficit and current account deficit.