The purpose of our paper is to analyze the main factors which influence fiscal balance’s evolution and thereby identify solutions for configuring a sustainable fiscal policy. We have selected as independent variables some of the main macroeconomic measures, respectively public debt, unemployment rate, economy openness degree, population, consumer goods’ price index, current account balance, direct foreign investments and economic growth rate. Our research method uses two econometric models applied on a sample of 22 countries, respectively 14 developed and 8 emergent. The first model is a multiple regression and studies the connection between the fiscal balance and selected independent variables, whereas the second one uses first order differences and introduces economic freedom as a dummy variable to catch the dynamic influences of selected measures upon fiscal result. The time interval considered was 1999-2013. The results generated using the two models revealed that public debt, current account balance and economic growth significantly influence the fiscal balance. As a consequence, the governments need to plan and implement a fiscal policy which resonates with economy priorities and the phase of the economic cycle, as well as ensure a proper management of the public debt, stimulate sustainable economic growth and employment.
If the inline PDF is not rendering correctly, you can download the PDF file here.
Alesina A. and Ardagna S. 2010. Large Changes in Fiscal Policy: Taxes versus Spending In J. R. Brown (Ed.) Tax Policy and the Economy (Vol. 24 pp. 35-68): University of Chicago Press.
Alesina A. Campante F. R. and Tabellini G. 2008. Why is Fiscal Policy Often Procyclical? Journal of the European Economic Association 6(5) 1006-1036. doi: http://dx.doi.org/10.1162/JEEA.2008.6.5.1006
Ali Abbas M. S. Bouhga-Hagbe J. Fatás A. Mauro P. and Velloso C. R. 2011. Fiscal Policy and the Current Account. IMF Economic Review 59(4) 603-629. doi: http://dx.doi.org/10.1057/imfer.2011.22
Anderson T. W. and Hsiao C. 1981. Estimation of dynamic models with error components. Journal of the American Statistical Association 76(375) 598-606. doi: http://dx.doi.org/10.1080/01621459.1981.10477691
Bénétrix A. S. and Lane P. R. 2010. International Differences in Fiscal Policy During the Global Crisis. NBER Working Paper 16346.
Buchanan J. M. 1962. The Relevance of Pareto Optimality. The Journal of Conflict Resolution 6(4) 341-354. doi: http://dx.doi.org/10.1177/002200276200600405
Chari V. V. Christiano L. J. and Kehoe P. J. 1991. Optimal fiscal and monetary police: Some recent results. Journal of Money Credit and Banking 23(3) 519-539. doi: http://dx.doi.org/10.2307/1992686
Chari V. V. Christiano L. J. and Kehoe P. J. 1994. Optimal fiscal policy in a business cycle model. Journal of Political Economy 102(4) 617-652. doi: http://dx.doi.org/10.1086/261949
Chari V. V. and Kehoe P. J. 1998. Optimal fiscal and monetary police: Federal Reserve Bank of Minneapolis Research Department.
Cimadomo J. 2012. Fiscal Policy in real time. The Scandinavian Journal of Economics 114(2) 440-465. doi: http://dx.doi.org/10.1111/j.1467-9442.2012.01697.x
Daniel B. C. and Shiamptanis C. 2013. Pushing the limit? Fiscal policy in the European Monetary Union. Journal of Economic Dynamics and Control 37(11) 2307-2321. doi: http://dx.doi.org/10.1016/j.jedc.2013.06.003
De Hoyos R. E. and Sarafidis V. 2006. Testing for Cross-sectional Dependence in Panel Data Models. Stata Journals 6(4) 482-496.
Favero C. Giavazzi F. and Perego J. 2011. Country Heterogeneity and the International Evidence on the Effects of Fiscal Policy. IMF Economic Review 59(4) 652-682. doi: http://dx.doi.org/10.1057/imfer.2011.25
Gavin M. and Perotti R. 1997. Fiscal Policy in Latin America. NBER Macroeconomics Annual 12 11-61. doi: http://dx.doi.org/10.1086/654320
Greene W. H. 2008. Econometric Analysis: Pearson Education
Hoechle D. 2007. Robust standard errors for panel regressions with cross-sectional dependence. Stata Journal 7(3) 281-312.
Kaminsky G. Reinhart C. and Végh C. 2004. When It Rains It Pours: Procyclical Capital Flows and Macroeconomic Policies. In M. Gertler and K. Rogoff (Eds.) NBER Macroeconomic Annual 2004 (Vol. 19).
Klein P. and Ríos-Rull J. V. 2003. Time-consistent optimal fiscal policy. International Economic Review 44(4) 1217-1245. doi: http://dx.doi.org/10.1111/1468-2354.t01-1-00107
Klemm A. 2014. Fiscal Policy in Latin America over the Cycle. IMF Working Paper. https://www.imf.org/external/pubs/ft/wp/2014/wp1459.pdf
Lane P. R. 2003. The Cyclical Behaviour of Fiscal Policy: Evidence from the OECD. Journal of Public economics 87(12) 2661-2675.
Langedijk S. 2004. The Pro-Cyclicality of Fiscal Policy in EMU Quarterly Report on the Euro Area (Vol. 3 pp. 27-37). Brussels: European Commission.
Leeper E. M. 2010. Monetary Science Fiscal Alchemy. NBER Working Paper 16510. doi: http://dx.doi.org/10.3386/w16510
Lucas R. E. and Stokey N. L. 1983. Optimal fiscal and monetary policy in an economy without capital. Journal of Monetary Economics 12(1) 55-93. doi: http://dx.doi.org/10.1016/0304-3932(83)90049-1
Lukkezen J. and Teulings C. 2013. Optimal Fiscal Policy. Tinbergen Institute Discussion Paper No. 13-064/VI.
Ramsey F. P. 1927. A contribution to the theory of taxation. Economic Journal (Oxford) 37(145) 47-61. doi: http://dx.doi.org/10.2307/2222721
Talvi E. and Végh C. 2005. Tax base variability and procyclical fiscal policy in developing countries. Journal of Development Economics 78(1) 156-190. doi: http://dx.doi.org/10.1016/j.jdeveco.2004.07.002
Zhu X. 1992. Optimal fiscal policy in a stochastic growth model. Journal of Economic Theory 58(2) 250-289. doi: http://dx.doi.org/10.1016/0022-0531(92)90055-M