Reduce Budget Deficits Research Articles

AN INVESTIGATION ON IMPACT OF TRADE OPENNESS & BUDGET DEFICIT ON PAKISTAN'S PUBLIC DEBT: ARDL APPROACH TO COINTEGRATION

In this empirical research, the purpose was to investigate the impact of trade openness and budget deficits on public debt in Pakistan. In this regard, data was examined spanning from 1975 to 2020. To map both long-run and short -run interactions, we used the autoregressive distributed lag (ARDL) method of co-integration along with ECM approaches. The results show that variables such as public debt, budget deficit, trade openness, and inflation have long- and short-term co-integration. Also, trade openness’s coefficient’s negative sign with value of -0.759 confirms negative relationship between public debt, trade openness and shows that a 1% upsurge in trade openness will bring a 75.9% decrease in public debt’s growth in Pakistan. While budget deficit and inflation both possess a positive sign of coefficients and a positive link with public debt, the coefficient of budget deficit is 0.498, which depicts that a 1% escalation in budget deficit will lead to a rise in public debt of 49.8 percent. In conclusion, Pakistan's national debt is rising due to budget deficit & inflation, but it is falling due to trade openness. To reduce budget deficit, government should balance domestic & external debt so as to sustain desired position. So, it is suggested the government actively trade internationally to minimize the public debt.

Investigating institutional and expenditure patterns on debt and economic growth in Ghana

AbstractThis study investigates the influence of government expenditure and institutions on public debt accumulation and economic growth in Ghana between 1990 and 2019. The paper examines how public debt is utilized for government spending on capital and recurrent expenditure, and the role bureaucratic quality plays in improving economic growth. The employed estimation technique is structural equation modelling because it effectively assesses complex situations and allows the modelling of complex systems by utilizing simultaneous equations, mediator analysis and modification indices to improve the goodness of fit of a model. The study indicates that public debt negatively affects GDP growth, whereas trade openness positively influences GDP growth and public debt accumulation. Bureaucratic quality impacts GDP growth positively and capital expenditure negatively. Recurrent expenditure positively predicts GDP growth and capital expenditure. Capital expenditure's effect on GDP growth is negative but statistically insignificant. The right checks and balances should be implemented to mitigate rent‐seeking and corrupt activities associated with bureaucracy. Tax revenue mobilization should be improved to reduce budget deficits and borrowing, whereas exports should be promoted through improving local industries. Finally, all infrastructural projects must be completed to serve their purpose.

The Long‐Term Economic Impact of Abenomics: Evidence from the Synthetic Control Method

This paper examines the long‐term causal impact of Abenomics, a comprehensive policy package aiming to revitalise the Japanese economy. Using the Synthetic Control Method (SCM), the study assesses the effects of Abenomics across a variety of economic indicators. The findings reveal mixed impacts, with no evidence of Abenomics reducing budget deficits or boosting exports, but a positive effect on real GDP per capita paired with a reduction in the unemployment rate. The evidence regarding the effect on labor force participation rates is weaker, with primarily statistically insignificant increases observed. These results offer insights into the effectiveness of comprehensive policy interventions and provide lessons for policymakers globally in the midst of a global economic slowdown.

Determinants of Uganda’s Debt Sustainability: The Public Debt Dynamics Model in Perspective

To investigate Uganda's debt sustainability determinants. The fundamental framework for this study is the public debt dynamics model, which looks at connections between changes in public debt and important macroeconomic factors such as real GDP, primary balance, currency rate, real interest rate, and trade openness. While acknowledging the significance of the primary variables identified by Mupunga and Le Roux, our empirical analysis of a country's debt dynamics extends beyond these factors. Additional considerations include the incorporation of controls such as the production gap and the non-interest current account balance. Tailored to Uganda's economic context, our comprehensive empirical model aims to provide a nuanced understanding of the diverse determinants influencing debt dynamics in the region. The major conclusions indicate that the Primary Balance, Real Interest Rate, and Real Effective Exchange Rate all positively and significantly affect the debt ratio, suggesting that fiscal surplus, low-interest rates, and currency appreciation are favorable to debt reduction and sustainability. The paper also finds that the debt ratio is negatively and significantly influenced by the Current Account Balance, indicating that trade surplus is beneficial for debt management. The paper further finds that the debt ratio is not significantly influenced by GDP growth, suggesting that economic growth may not have a strong effect on debt dynamics in Uganda. Given the significant impact of the "Primary Balance" on the "Debt-to-GDP ratio in the long run, policymakers should prioritize maintaining a fiscal surplus and prudent fiscal management. Implementing measures to enhance revenue generation, control government expenditures, and reduce budget deficits can contribute to reducing the debt burden and ensuring long-term debt sustainability. To keep the debt-to-GDP ratio in good shape, fiscal policies and long-term restraint are crucial.

The threshold level of budget deficit and money supply that stabilize inflation in Nigeria

This study evaluates the threshold level of budget deficit and money supply that stabilize inflation in Nigeria spanning 1986 and 2020. The study aimed at determine the threshold level of budget deficit and money supply that stabilize inflation in Nigeria. In Addition, the study applied the Hansen threshold model (1998) to estimate the threshold level. The study employed annual data on budget deficit (proxied by budget deficit as a share of GDP), money supply (proxied by money supply), inflation (proxied by consumer price index) collected from Central Bank of Nigeria Statistical Bulletin, 2020 edition. Based on the findings of our analyses, the study concludes that budget deficit raises money supply and induces inflationary pressure in Nigeria. The study therefore recommends that there is need for the authorities in Nigeria should reduce the cost of governance by reducing overhead and allowance of political office holder in order to reduce budget deficit. The study therefore recommends that government must ensure that yearly budget imbalance does not exceed this threshold in order to mitigate deficit induce inflation. Also, there is the need for government to strengthening public financial management reforms (like Fiscal Responsibility Act, the Medium-Term Expenditure Framework). This will engender fiscal discipline and reduce fiscal deficit over time.

The asymmetry effect of budget deficit and inflation in Nigeria

This study evaluates the asymmetry effect of budget deficit and inflation in Nigeria spanning 1986 and 2020. The dissertation employed the Non-linear Autoregressive Distributed Lag (NARDL) approach of Shin, Yu and Greenwood-nimmo (2014) to examine the effect of budget deficit on inflation in Nigeria. The study employed annual data on budget deficit (proxied by budget deficit as a share of GDP), money supply (proxied by money supply), inflation (proxied by consumer price index) collected from Central Bank of Nigeria Statistical Bulletin, 2020 edition. The result of the effect of budget deficit on inflation indicates that in the long run, positive change in budget deficit induces inflation. This result indicates that rise in budget deficit is inflationary in Nigeria. Furthermore, the inflationary role of positive change in budget leads to higher price level. In addition, a negative change in budget deficit exerts an inflationary pressure in the long run though insignificant. Based on the findings of our analyses, the study concludes that budget deficit raises money supply and induces inflationary pressure in Nigeria. The study therefore recommends that there is need for the authorities in Nigeria should reduce the cost of governance by reducing overhead and allowance of political office holder in order to reduce budget deficit.

Government Revenues and Government Expenditures, or Fiscal Synchronization: Empirical Evidence from South and Eastern Asia

To understand and solve budget deficit problems, some academics propose budgets cuts while some suggest increase in taxes. The purpose of this study is to check the causal relationship among ten countries from two regions, south and eastern Asia, where all countries are developing except, Japan. The relationship is tested among three fiscal variables for the period of twenty-seven years from 1980 to 2017. For analysis purposes, Augmented Dickey Fuller test, Toda and Yamamoto Granger Causality Test and Johnson co-integration tests has been used. The results reveal three co-integrating effects for, Bangladesh and Mongolia, two for India and Japan, one for Sri Lanka, Nepal, China, South Korea, North Korea, while non for Pakistan. The Toda and Yamamoto Granger causality tests reveal evidence of tax-and-spend hypothesis for China, Pakistan, and Nepal. For Nepal, we found support for spend-and-tax hypothesis. There is evidence of neutrality for Japan, South Korea, North Korea, Mongolia, India, Sri Lanka, and Bangladesh. The results validate that south and eastern Asian countries tax policies have lessor impact to reduce budget deficits and do not offer permanent solution for fiscal problems. Our findings support increase in taxes may be a good solution to budget deficit problem, but it can be reduced if revenues and expenditures are controlled simultaneously. Major policy implications include, raising tax rates in nations like China, Pakistan, and Nepal, to increase revenue and strengthen fiscal sustainability, the significance of government spending reduction as a key tactic for managing budget imbalances, the importance of balancing both revenue generation and expenditure and flexibility in approach and continual monitoring of fiscal indicators.

Умная бюджетная консолидация

Budget consolidation aims at the correction of budget imbalances and the reduction of national debt. There are approaches to defining budget consolidation through the primary budget deficit reduction and through the improvement of the ratio of the adjusted primary balance to potential gross domestic product. As a rule, the focus of budget consolidation measures is associated with the budget expenditure austerity or revenue growth promotion. The study of the International Monetary Fund and the budget consolidation programs of selected OECD countries identified tools and activities that can be classified as hard, aggressive, soft, and smart budget consolidation. The paper provides an overview of budget consolidation tools and their impact on macroeconomic indicators. The empirical analysis completes the study in relation to the national debt sustainability for the domestic economy and the economy of foreign countries. The author analyzes the dynamics of national debt parameters for individual countries, as well as for groups of countries depending on the economic development level, and concludes on the necessity of implementing budget consolidation measures in the post-crisis period. The approaches to budget consolidation are typologized. The key smart tools for smart budget consolidation are the technologies of budget account liquidity management, the technologies of tax administration, electronic public procurement, the “social treasury” mechanism, and pooling of subsidies. Institutional smart tools include rapid budget expenditure reviews, tax expenditure optimization, and the enhancement of the role of budget councils. Smart budget consolidation tools do not depend on the crisis and recovery periods, but are aimed at the permanent efficiency improvement both of expenditures and revenues of the budgets of the budgetary system. Using flexible tools, it is possible to mitigate the negative effects of budget consolidation, including lag. The advantages of smart budget consolidation are proved through the socio-economic effects, which are provided by the education and healthcare expenditures. Correlation-regression analysis showed a direct strong interelation between these expenditures and the income index of the population. The author proposes to increase the level of efficiency of budget expenditures and budget revenues through the application of a dynamic set of budget consolidation tools related to the use of management and digital technologies.

Effect of Selected Macroeconomic Variables on Budget Deficit in Kenya

Macroeconomic stability has been a concern to many economies as it shows the economic health of a nation. Kenya has had unsustainable and persistent fiscal deficit which has been phenomenal in the recent past despite several economic reforms being established in an attempt to stabilizing the economy. The study was informed by the persistent increase in the budget deficit in Kenya amidst economic stagnation and macroeconomic instability. This therefore led to an attempt to establish the effect of selected macroeconomic variables on the budget deficit in Kenya. The specific objectives were to determine the effect of interest rates; exchange rate; inflation and money supply on budget deficit in Kenya. The study sought to evaluate the significant effect of the selected macroeconomic variables on budget deficit in order to formulate the policy consideration to the economic problem. The study was guided by the Keynesian which was the main theory of the study. The Mundell-Fleming and Ricardian Equivalence theories were also employed as addition theories to back up the study. The study methodology was based on an explanatory design for time series data covering 30 years from 1991 to 2020. Autoregressive distributed lag error correction model (ARDL) estimation was adopted to analyze and infer results of the study. The CUSUM model stability test indicated that the model was stable and the model coefficient was reliable. Diagnostic test results showed there was no autocorrelation (p=0.1510>2.062), no heteroscedasticity (p=0.0903>21.47), and there was no multicollinearity (vif=1.34). Shapiro wilk normality test indicated that the variables of the study were normally distributed. The ADF unit root test indicated that there was unit root and co-integration test confirmed that the variables had a long run relationship. The findings of the study were: interest rate had a positive significant effect on budget deficit in the long run ( β_1=0.0404, <0.05); exchange rate had a positive significant effect on budget deficit ( β_2=0.4189, <0.05); inflation had a negative insignificant effect on budget deficit ( β_3=-0.001, >0.05). Money supply had a positive insignificant effect on Budget deficit ( β_4=0.00004, >0.05). The ARDL long-run results showed that the explanatory variables had Adjusted R2=0.4666 impact on the budget deficit and an F-statistics of 135.5802. The study therefore concluded that interest rate had a positive effect on the budget deficit in the long run. Increasing interest rates in the economy ends up driving budget deficit upwards in the long run. The same was true when the variable of concern is exchange rate. The study findings recommend that there is need for the government to ensure there is stability in macroeconomic variables. This is because there was a significant link between the budget deficit and the selected macroeconomic variables. A strive by the government to reduce budget deficit would mean an adjustment in macroeconomic variables to suit the purpose. These adjustments may include reducing the interest rate in the economy. A reduction in the interest rates in the economy would end up reducing the budget deficit.

The Relationship Between Public Expenditures and Tax Revenues: An Empirical Study for Turkey

Currently, budget deficits have become an important problem in developed countries as well as in developing countries. It is seen that there are discussions on the necessity of increasing public revenues or reducing public expenditures in order to reduce budget deficits in countries. Determining the relationship between public expenditures and tax revenues by causality analysis method and determining the relationship between them has an important role in determining the fiscal policies to be implemented in reducing the budget deficits. In order to determine this relationship, monthly data of central government public expenditures and central government tax revenues covering the years 2006-2021 were used. According to the Tsong (2016) fourier cointegration test, a long-term relationship was found between public expenditures and tax revenues. The causality relationship between public expenditures and tax revenues was examined with the Toda – Yamamoto test and a one-way causality relationship was found from tax revenues to public expenditures. The empirical results obtained from the study show that the tax-expenditure hypothesis is valid between public expenditures and tax revenues in Turkey. The tax-expenditure hypothesis is based on reducing tax revenues to reduce budget deficits.

Determinates of Budget Deficit in Selected East and West African Countries: A Dynamic Panel Data Approach

Budget deficits imitate rank of monetary health in which public outflow exceed public inflow. In this study the determinates of budget deficit analyzed in two regions east and west African cross countries from the year of 2000 to 2017 using a dynamic panel data approach. The data is obtained from WDI, IMF database and annual reports of these institutions. The study employed least square dummy variable fixed effect estimations technique of the model and It also investigate interaction variable of debt regressions result to know whether the source of debt in the regions of countries are same or not. The result reveals that higher number of unemployment, broad money supply and high amount of total population growth are associated with a significant effect on budget deficit. While real gross domestic product, debt and inflations rate are showed insignificant effect on budget deficit in the analysis of the regions. The study also including time invariant variable in the estimation result that is country dummy in the study implied that, as comparing to Ethiopia the amount of budget deficit in Tanzania, Senegal and Cote Divore are higher amount of public deficit implied by country dummy analysis of this study. The study indicates as policy implications reducing higher level of unemployment, broad money supply and populations’ growth rate are technically reducing budget deficit of the regions and knowing the optimum amount of budget that raised by the policy maker to the economy is crucial to the regions. Finally on the basis of this study, it makes a number of recommendations to reduce budget deficits in the regions. Keywords: budget, determinates, panel, fixed, LSDV, east and West Africa DOI: 10.7176/JESD/13-3-01 Publication date: February 28 th 2022

The impact of budget deficit, public debt and education expenditures on economic growth in Poland

AbstractThis paper investigates the relationship between economic growth in Poland and a few metrics of fiscal policy: budget deficit relative to GDP, the structure of public debt, education expenditures, and public consumption. We prove that with constant values of parameters of fiscal policy, over time the economy converges to the balanced growth path which is unique and globally asymptotically stable.Having calibrated the model with statistical data, we demonstrate that in the period of 2000–2016 economic growth in Poland was driven primarily by rapid improvement in the level of human capital (at a rate of 5.4% per annum), and secondarily due to the accumulation of capital (2.7% annually). If recent trends in fiscal policy are continued, the Polish economy will converge to the balanced growth path with GDP growing at 3.7%. This rate may be boosted, if fiscal policy is appropriately adjusted, for example by permanent reduction in budget deficit. We also analyse the effects of changes in the financing structure of public debt. Finally, we present several scenarios of increasing public and private spending on education.

Factors Affecting Foreign Direct Investment in Ethiopia: ARDL Approach to Co-integration

Different studies show that FDI has important roles to the economic development of a given country and it is determined by several factors. This study tried to investigate what critical factors are determining the amount of FDI inflow into Ethiopia. To accomplish the objective of the study a time series data ranging from 1981 up to 2016 is employed. The results of the Augmented Dickey Fuller (ADF) test indicate that the variables under consideration are a mixture of integrated of order zero and order one, that is, I(0) and I(1). Moreover, the result of bounds testing confirms the existence of stable long run relationship between FDI and its determinants. Accordingly, Autoregressive Distributed Lag (ARDL) model or bounds testing approach to co-integration and Error Correction Model (ECM) are applied to investigate the long run and short run relationship between FDI and its determinants respectively. The results of the study revealed that trade openness and real GDP positively influence the inflow of FDI while real effective exchange rate and government fiscal deficit have an adverse effect on FDI inflow. As a policy implication, it is recommended to dismantle restrictions on the free flow of capital, promote poverty alleviation strategies to enlarge the domestic market, strive to reduce budget deficit and avoid frequent changes in exchange rate. Keywords: ARDL, Bounds testing, ECM, Ethiopia, FDI DOI: 10.7176/EJBM/12-35-02 Publication date: December 31 st 2020

Impact of Tax Revenue on Government Expenditure in Ethiopia; OLS Method

Factually, public expenditure has noted a nonstop uptrend over time in developing country. However, traditional thinking and philosophy did not favor the growth of public expenditure. Instead, it well thought-out market mechanism as a better guide in working of the economy and allocation of its resources. The empathy of the revenue-expenditure connection is vital to govern the correct course of action for fiscal discipline and fiscal policy. Basically the main objective of this study was to understand the impact of tax revenue on government expenditure in Ethiopia from the period of 1974/75 to 2019/20. In order to achieve the objective of this study a researcher used world development index and national bank of Ethiopia as a main data source. To found the impact of tax revenue on government expenditure the study employed Augmented Dickey Fuller, ordinary least square and pairwise granger causality test. For Ethiopia economy the result proved tax revenue and the previous expenditure has positive impact on government expenditure. The pairwise granger causality test also strength as there is causality which runs from tax revenue to government expenditure. The result of this study has been proved the first revenue-spent (tax-spent) hypothesis. The study recommends that the government should increase tax base and practice proper administration of tax system and generate inordinate revenue. In somehow, it is used as a means to cover excess expenditure and to reduce budget deficit. Moreover, in Ethiopia from time to time there is population growth, increasing urbanization, provision of social overheads, maintenance of order and law, welfare activities, projects and provision of public goods and utility service. So, the previous started activates needs more expenditure to sustain them currently. This may lead to budget deficit but the government should balance its expenditure and revenue, plus to this the government should accomplished activities which started previously without dalliance, this help the government to minimize the current expenditure in somehow, and can save the country from sustainable budget deficit. Reduce spent for cosmetic activates which have no more return. Keywords: Ethiopia, Impact, Tax, Expenditure, OLS DOI: 10.7176/JESD/10-13-06 Publication date: July 31 st 2020

Fiskalna konsolidacija u EU-28 - višegodišnje epizode versus hladan tuš

In the aftermath of the global recession, the need for fiscal consolidation in order to reduce budget deficits and the public debt has intensified, but with the aim to make the measures applied not affect the further slowdown of the economic activity in the European Union (EU) economies. In this paper, the episodes of the fiscal consolidation in the period from 1990 to 2015 in the 28 EU economies are analyzed, differentiating the multiyear episodes against the one-year (i.e. cold shower) episodes and their effects before and after the global recession. The episodes of the fiscal consolidation that result in successful (a reduction in the cyclically-adjusted primary budget deficit) and expansionary effects (the GDP growth) are identified, thus empirically confirming the existence of non-Keynesian effects. The stated affirms the idea that the achievement of fiscal sustainability by using austerity measures does not necessarily imply contractions in economies and that the development of a fiscal architecture in the EU by establishing complementarity between the national and supranational fiscal rules is of extraordinary importance in the post-crisis period.

The Effects of Increasing versus Decreasing Private Goods on Legislative Bargaining: Experimental Evidence

Recent interest in reducing budget deficits raises questions regarding the impact on legislative bargaining of cuts versus increases in government spending. Using an experimental design where the outcomes are theoretically isomorphic results in significant differences in bargaining outcomes: There are longer delays in reaching agreement with cuts than with increases, along with which legislative types get their proposals passed. These results can be attributed to the change in agents’ reference point in going from gains to losses.

Assessment of Tax competition Influence on National Tax System Competitiveness

The subject of the research is the condition of cross-country tax competition and its influence on the tax system compatibility. The urgency of the research is determined by the prospects of tax government risks mitigation tools introduction in response to the necessity to reduce budget deficit on the whole and to the increasing risks of competitiveness lowering as a result of growing tax bases mobility in particular. The purpose of the work is to assess the tax competition influence on competitiveness of national tax systems on the basis of cross-countries tax competition experience in the European Union. The content and essence of tax competition are revealed. It is justified that risk of tax system competitiveness reduction is closely connected with the process of tax competition. Cross-countries tax competition is illustrated with the experience of the EU member countries. The statistical data confirming the trend to reduce tax rates in the EU countries are given. Factors of national systems competitiveness are defined. They are the level of tax burden on citizens’ income and business revenue, the amount of taxes and dues, period of time provided to prepare tax records and paying taxes, ratingDoing Business,average annual economy growth rate, cost of labor and level of corruption. On the basis of the multicriterion methodsSAWandPROMETHEE IIa technique to determine tax competitiveness is presented.

Reference point effects in legislative bargaining: experimental evidence

Recent interest in reducing budget deficits raises questions regarding the impact on legislative bargaining of cuts versus increases in government spending. Using an experimental design where the outcomes are theoretically isomorphic results in significant differences in bargaining outcomes: There are longer delays in reaching agreement with cuts than with increases, along with which legislative types get their proposals passed. These results can be attributed to a change in agents’ reference point in conjunction with differential responses to gains versus losses.

Stock-Flow Adjustment – Only a Residual Value? Evidence from European Union Countries

Abstract The aim of the article is to investigate the fiscal determinants of stock-flow adjustment (SFA). Previous literature suggests that SFA may be used strategically to reduce budget deficit and public debt. As such, SFA impairs fiscal transparency and may endanger fiscal sustainability. Therefore, special attention should be paid by economists and policymakers. The study pertains to the European Union countries in the years 2005-2016. The empirical analysis supports the hypothesis that SFA is inversely related to public debt, whereas the inverse relationship between budget balance and SFA is not confirmed. The article contains additional analyses for selected components of SFA as well as narrower time and space coverage.

Stock Market Performance, Exchange Rate Volatility and Foreign Direct Investment to Sri Lanka

This study investigated the impact of exchange rate volatility and stock market performance on the inflow of foreign direct investment to Sri Lanka using quarterly data from 2004 to 2018. The ordinary least square technique and error correction mechanism was used in estimations. Empirical results suggested that FDI is significantly correlated with the exchange rate volatility. Therefore, monetary and fiscal policy measures are required to reduce budget deficit, trade gap and debt ratios in order to maintain a stable exchange rate. Further, findings indicated long run uni-directional causality from Stock Market to FDI while there is no short term relationship between the two variables. If the stock market is developed and foreigner participation can be increased then that will motivate FDI inflows to the country. This implies that policy makers must aim at developing the stock market for a resulting increment in FDI flows to the country.