This cookie is set by Videology. The data includes the number of visits, average duration of the visit on the website, pages visited, etc. 2016; (76304): 123. The cookie is used by cdn services like CloudFlare to identify individual clients behind a shared IP address and apply security settings on a per-client basis. World Bank Research Observer. The study identified a budget deficit of approximately 4 per cent of Gross Domestic Product (GDP) as being optimal for the case of Kenya economy, beyond this level, the benefits obtained . 1. This study therefore examines the long run and short run effect of budget deficit and economic growth in twenty SSA countries from 1991 to 2018 using the pooled mean group estimation technique. Used by Google DoubleClick and stores information about how the user uses the website and any other advertisement before visiting the website. Their assumptions are based on sound economic literature, but the consensus over the last 10 years has developed substantially as interest rates have remained low.. 22. In summary, the three main policies are: Cut government spending. In this study, the author examines the threshold effect of budget deficit on economic growth in the Ghanaian case, using quarterly data from 2000-2012. Are the Twin or Triple Deficits Hypotheses Applicable to Post-Communist Countries? Since then, though, Turkey has experienced two financial crises and redesigned its stabilization program to bring inflation down more gradually. Results show that the growth inhibiting consequences of the budget deficit in South Africa are principally driven by negatively affecting private and . This cookie is used to store a random ID to avoid counting a visitor more than once. In terms of finance, deficit refers to a shortfall of certain economic resources, mostly money. A time series data for the period of 2010-2015 has been used to check the relationship between budget deficit and economic growth of Bangladesh. Economic Modelling. To read more of such interesting concepts on economics for class 12, stay tuned to our website. 1:27. WASHINGTON - The national debt is $21 trillion and counting. The study employed the error correction method and the findings revealed that fiscal policy was weakly sustainable in the economy of Nigeria. Kim & Roubini [24] investigated the effect of government deficits on the real exchange rate and current account in America for the period 1973 to 2004 using the VAR estimation method. Manager of Communications Short run: The short run result in table 3 shows that budget deficit as a percentage of GDP has a positive effect on economic growth in SSA countries. In fact, static panel data estimates suggest that a one percent increase in the fiscal deficit/GDP ratio tends to deteriorate the current account/GDP ratio of 0.21 percent, although it increases the private consumption of 0.21 percent. The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". This research aims at investigating the true impact of the budget deficit on the economic growth of the country. This cookie is set by Youtube. Also, the SSA region witnessed mixed and most of the times, low annual growth during the review periods. During a recession, the economy tends to experience a decrease in investment spending from the private . This variable is especially significant for most developing countries including SSA countries where fiscal discipline plays very important role. The study employed the panel fixed effect estimation method as well as the generalized method of moments. These deficits have sharply increased the public debt (the accumulated burden of yearly budget deficits), which jumped to 70 percent of GDP in 1995 from 40 percent in 1980, weakening government finances and draining resources from the economy. Government revenue, on the other hand, is the revenue obtained from different sources, whether these revenues are from taxes or non-taxes. There has rather been crowding-in. Deficit Spending in the Great Depression of the U.S. Aero, O., & Ogundipe, A. Journal of Applied Econometrics. This cookie is installed by Google Analytics. 1993; 8(2): 211237. If the government deficit is financed by borrowing from commercial banks, the effect will be an increase in the interest rates, thereby leading to crowding out of private investors. However, there is always a need for government to undertake very useful measures aimed at shaping the economy and budget deficit is one of such measures. The empirical findings of our study show mixed results. eration in the rate of economic growth. Budget deficit. The period of the study was 1948 to 2004 and the findings showed that there is the presence of two breaks in the current account deficits which occurred in the fourth quarter of 1982 and the second quarter of the year 1999, while there is a one break presence of budget deficit which happened in the second quarter of the year 1974. The relationship between budget deficits and key macroeconomic indicators (such as economic growth, inflation, interest rate, exchange rate and gross investment) presents one of the most discussed topics among researchers and policy makers both in. The countries are Namibia, Botswana, Gabon, Mauritius, Equatorial Guinea, South Africa, Angola, Nigeria, Ghana, Kenya, Senegal, Eswatini, Lesotho, Togo, Rwanda, Uganda, Tanzania, Ethiopia, Burkina Faso, and Benin. The Journal of Developing Areas. Salotti, S., & Trecroci, C. The impact of government debt, expenditure and taxes on aggregate investment and productivity growth. I appreciate the opportunity to testify today. The cookie sets a unique anonymous ID for a website visitor. Tax cuts also expand the economy. A look at different methods to reduce budget deficits. Eisner and Pieper (1987) report a positive impact of, cyclically and inflation-adjusted budget deficit on economic growth in the United States and, other Organization for Economic Cooperation and development (OECD) countries. It works slightly different from AWSELB. 15. The two Democratic presidents since 1981 (Bill Clinton, Barack Obama) decreased the federal deficit. The aim of the paper is to test empirically the validity and rationale of the Keynesian proposition (conventional view or Twin Deficits hypothesis) and the Ricardian Equivalence hypothesis, as well as to analyze the relationship between fiscal policy and private consumption. They further stated that budget deficit will leave a huge tax burden on future generation because borrowed funds will need to be repaid. In addition, negative correlation of government budget deficit with economic growth is also maintained. 9. The finding of the study is in line with the Ricardian Equivalence theory. Enter your email to get the latest news from the Flutterwave team, and knowledge you need to build a profitable business. This cookie is set by Sitescout.This cookie is used for marketing and advertising. Increasing budget deficits have become common features of most developing countries, and the economic consequences of such deficits as seen in empirical literature are inflation, devaluation of currency, deteriorating gross domestic product, fiscal adjustment, which constitute important element of the economic agenda. The countries are Namibia, Botswana, Gabon, Mauritius, Equatorial Guinea, South Africa, Angola, Nigeria, Ghana, Kenya, Senegal, Eswatini, Lesotho, Togo, Rwanda, Uganda, Tanzania, Ethiopia, Burkina Faso, and Benin. Increased domestic borrowing by the government increases consumers autonomous consumption which motivate more production in the economy, consequently increasing the GDP (Tatjana, 2009). Author came to conclusions that deficit do not cause high, inflation through monetary expansion; deficit has a negative relationship with real output, growth rate; and increased deficit do appear to slow down investment usually after one or two, years. To achieve sustainable economic growth of a country . Budget Deficit: A budget deficit is an indicator of financial health in which expenditures exceed revenue . From the results therefore, the null hypothesis is rejected, and the conclusion is that budget deficit has a negative significant effect on economic growth in SSA countries. The cookie is used to collect information about the usage behavior for targeted advertising. Based on the estimation result, it was found that in the long run, budget deficit has a negative and significant effect on economic growth, while it had a positive and significant effect in the short run in SSA countries. The results show the reverse causal relationship between budget deficit and. The study covered the period 1972 to 2012. The findings however showed that budget deficit inversely affects gross domestic product and the effective fiscal deficit enhances capital formation directly and indirectly encourages the private sector to invest more. The federal budget deficit is not an accident. This cookie is used for advertising services. Consequential effects of budget deficit on economic growth: Empirical evidence from Ghana. Finally, inclusion of the world interest rate and the exchange rate in the model may better capture the behaviour of the long-term interest rate in Japan. 25. The median value for log of real gross domestic product is 10.08, while it is -2.56 for budget deficit. This would be more than a 40 percent increase in the budget deficit as a percent of GDP from 2016 when the $587 billion deficit represented 3.2 percent of that years GDP. In contrast Terms of trade are negatively related to external debt being statistically insignificant. The sample taken for the current study comprises of time-series considering period of 1978-2009. Finally, Granger-causality tests show mixed results. It checked a more efficient model against a less efficient but consistent model in order to ensure that the efficient model gives consistent results. This information us used to select advertisements served by the platform and assess the performance of the advertisement and attribute payment for those advertisements. The Tax Foundation is the nations leading independent tax policy research organization. This cookie is used for serving the retargeted ads to the users. GDP growth declined to 1.7 percent on average between 2011 and 2019. A budget deficit implies lower taxes and increased Government spending (G), this will increase AD and this may cause higher real GDP and inflation. The VECM and variance decomposition results showed that budget deficits and real GDP are negatively correlated, and that budget deficit and the rate of inflation and money supply are positively correlated. Keynes stated that the government use budget deficit to stimulate demand in the economy in times of recessions and depressions. The cookies is used to store the user consent for the cookies in the category "Necessary". It contain the user ID information. Regression analysis This cookie is provided by Tribalfusion. In this regard this paper examines the causal relationship between budget deficit and trade deficit based on annual time series data from 1972-73 to 2011-12 fiscal year. i=1p: Captures the short-run impact of budget deficit on macroeconomic performance in SSA countries. First, it permits the possibility that some economic resources are unemployed. Ghana, VALIDITY OF TWIN DEFICIT HYPOTHESIS IN CASE OF PAKISTAN: USING DIFFERENT CO- INTEGRATION TECHNIQUES, THE IMPACT OF GOVERNMENT EXPENDITURE ON ECONOMIC GROWTH IN GHANA, Budget Deficit and Inflation in Nigeria: A Causal Relationship, THE IMPACT OF GVOVERNEMT EXPENDITURE ON ECONOMIC GROWTH - EVIDENCE FROM GHANA (1980-2013).docx, Fiscal Deficit Financing and Financial Market Development Nexus in Nigeria, Public Sector Spending and Economic Growth in Nigeria: In Search of a Stable Relationship, THE EFFECT OF BUDGET DEFICIT ON ECONOMIC DEVELOPMENT IN EAST AFRICAN COUNTRIES, Budget Deficit and Economic Growth in Liberia: An Empirical Investigation, Effectiveness of Deficit Financing in Stimulating Gross Domestic Output: Insights from the Nigerian Economy (1970 -2014) By, An Empirical Analysis of the Budget Deficit and Unemployment Nexus in Nigeria, Empirical Analysis of Fiscal Dominance and the Conduct of Monetary Policy in Nigeria, THE EFFECTS OF BUDGET DEFICITS ON SELECTED MACROECONOMIC VARIABLES IN NIGERIA AND GHANA (1970 2013, GOVERNMENT REVENUE AND ECONOMIC GROWTH IN ETHIOPIA (JOHANNES CO-INTEGRATION APPROACH), An Empirical Analysis of Effectiveness of Monetary and Fiscal Policy Instruments in Stabilizing Economy: Evidence from Nigeria, Budget Deficits and Human Development in Nigeria: An Empirical Study, EFFECT OF GOVERNMENT DEFICIT BUDGETING AND FINANCING STRATEGIES ON ECONOMIC GROWTH IN NIGERIA, RELATIONSHIP BETWEEN FISCAL DEFICIT AND ECONOMIC GROWTH: EVIDENCE FROM PAKISTAN, Fiscal Policy Determinants of Money Demand in Nigeria: ARDL Bound Testing Approach, Testing the Validity of Crowding out Effects Hypothesis on Nigeria's Economy: Vector Error Correction Model (VECM) Approach, Budget deficit and inflation nexus in Uganda A Conintegration and Error Correction modeling Approach, Government Expenditure and Economic Growth in Nigeria, Fiscal Deficit and Economic Growth in the Gambia: A Search for Threshold, The Effects of Budget Deficit on Economic Growth and Development: The Experience of Ghana (1994 2014), Tax-budget Deficit Relationships: Fiscalists Platform for Deficit Financing Policy, Twin deficits: new evidence from a developing (oil vs. non-oil) countries perspective, Federal Capital Expenditure and its impact on Economic Growth in Nigeria; 1980-2010, Effect of Budget Deficit on Economic Growth: In the case of Ethiopia, Determinants of the Size of the Government Expenditure: An Empirical Study on Bangladesh, The Relationship between Fiscal Deficits and Economic Growth in Kenya: An Empirical Investigation, Deficit Financing and Economic Growth in Nigeria: 1987-2017. 18. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and global levels. 2014; 6(10): 191200. A budget deficit will occur if there is high government . Barro [3] posited that because increased public consumption has to be paid, the reduced taxes in the current year must correspond with the same increase in the present value of future taxes thereby leaving public consumption and interest rates unchanged. This cookie is set by StatCounter Anaytics. This collection analyzes the nature of Turkey's inflation and the likely costs and benefits of disinflation. This cookie is used to identify an user by an alphanumeric ID. Fiscal deficit is difference between total government receipts (taxes and non-debt capital) and total expenditure. Arjomand, M., Emami, K., & Salimi, F. Growth and productivity; The role of budget deficit in the MENA selected countries. The results suggest that higher budget deficit crowd out, domestic investment and increase trade deficit. The purpose of the cookie is to determine if the user's browser supports cookies. JEL Classification: H6; O4 1.0 Background Budget is the amount of money reserved for a particular institution, activity or time-frame, which is a . The Ricardian equivalence theory was criticized by Feldstein [10] as he stated that Barro ignored economic and population growth in his study stating that the creation of public debt depresses savings in a growing economy. For log of real gross domestic product, the mean value is 10.13, while it is -4.56 for budget deficit. We also use third-party cookies that help us analyze and understand how you use this website. . MPRA Paper. The analysis applied the STAR model to time-series data for the period 1972 to 2014. B. 2001; 16(3): 289326. 324 KIU Interdisciplinary Journal of Humanities and Social Sciences, 1(2), 320-334 . 2018; 6(5): 137150. This cookie is set by doubleclick.net. How this extra fund is dispensed is very important in determining such a nation's . This cookie is used in association with the cookie "ouuid". Therefore, increased public saving offers more credit to families and economic enterprises. Epaphra [2] examined the causal relationship between budget deficits and macroeconomic fundamentals namely real GDP growth rate, the rate of inflation, interest rate, money supply and real exchange rate in Tanzania. 2005; 50(2): 211243. With the global economic crises in 2008, economic growth faltered in many economies due to prolonged crisis in the world economy that caused the contraction in the global GDP first time after a long period of global stability. Issues about the macroeconomic effects of budget deficit are addressed by three schools of thought, namely, the Neo-classical, Keynesian and Ricardian. This study empirically examined the long run and short run effect of budget deficit on economic growth in SSA Countries from 1991 to 2018. This is a Lijit Advertising Platform cookie. The sample used for this study is based on panel data-sets between 1994 and 2014. Governments expenditures include money spent on all projects regardless of the goal of these projects such as transportation, education, defence, and civil administration to mention a few. Source: Authors computation using Stata14. Generally, there are three major theories concerning the macroeconomic effect of budget deficit. In contrast, a budget surplus occurs when the government's tax revenues are greater than its spending for a particular year. Then, the roaring twenties, referring to a period of economic prosperity from 1920 to 1929, began to slow down, leading to a recession that turned into the great depression, which started in 1929 and continued till the end of World War II. This cookie registers a unique ID used to identify a visitor on their revisit inorder to serve them targeted ads. If the government borrow in a recession as part of expansionary fiscal policy then it can help accelerate an economic recovery and reduce . The cookie is used to store the user consent for the cookies in the category "Analytics". The objective of fiscal policies until the great depression focused on maintaining a balanced budget. Augmented version of Wagners Law, where public deficit appears as further explanatory variable, is also investigated. Fiscal deficit and Nigerias economic development. Journal of Economic and Sustainable Developement. Regression analysis is conducted to ascertain the impact of BD on the GDP, and explored a negative impact of budget deficit on the economic growth. Depends on the situation of the economy. The study concluded that government should reduce the overall recurrent expenditure as it will help to mitigate the problem of budget deficit that leads to debt accumulation in sub-Saharan Africa and increase expenditure on developmental projects. Morgan & Francone, CPA's is, Which of the following, having been issued a license in California, is allowed to use the title of Certified Public Accountant, or the abbreviation CPA, without modification? The domain of this cookie is owned by the Sharethrough. Help us continue our work by making a tax-deductible gift today. Furthermore, Oyeleke & Ajilore [22] investigated the sustainability of fiscal policy in Nigeria for the period 1980-2010. 2018; 8(3): 296306. Amazon has updated the ALB and CLB so that customers can continue to use the CORS request with stickness. The period of study was from 1964 to 1993 and multiple regression analysis, as well as meta-analysis was used to analyse the data. 27. Singapore Economic Review. This has occurred in countries such as Germany (1920s) and Zimbabwe (2000s). Some policies are suggested for the government to avoid certain levels of the budget deficit to achieve desired level of growth. For most Americans . 5. Depends on the situation of the economy. Get access to all 5 pages and additional benefits: Kai & Chung, CPA's has thirty professional staff and ten administrative staff, including bookkeepers. Current Account Deficit, Budget Deficit and Saving Gap: Is the Twin or Triplet Deficit Hypothesis Valid in G7 Countries? 29. It helps to know whether a visitor has seen the ad and clicked or not. A budget deficit implies a reduction in taxes and an increase in government spending, which results in an increase in the aggregate demand of the country and subsequent economic growth, ceteris paribus. This cookie is used by Google to make advertising more engaging to users and are stored under doubleclick.net. These forecasts are continually updated to reflect social, political, and economic changes that could impact financial reporting . Average duration of the visit on the economic growth in SSA countries from 1991 to 2018 today! Government budget deficit on the website in Nigeria for the period of 1978-2009 stated that deficit... To our website 2 ), 320-334 government to avoid counting a visitor on their revisit inorder to serve targeted! To determine if the user 's browser supports cookies determine if the user consent for the cookies is to. Us analyze and understand how you use this website leave a huge tax on... To know whether a visitor more than once 1991 to 2018 has been to. Revenues are from taxes or non-taxes deficit crowd out, domestic investment and productivity growth or Triple Hypotheses. Expenditure and taxes on aggregate investment and productivity growth ) decreased the federal deficit this cookie is for... To collect information about the usage behavior for targeted advertising has seen the ad and clicked not... `` ouuid '' also, the SSA region witnessed mixed and most of the U.S. Aero O.. Serve them targeted ads SSA region witnessed mixed and most of the country our website of interesting. Inflation and the findings revealed that fiscal policy in Nigeria for the is... Crises and redesigned its stabilization program to bring inflation down more gradually budget Deficits is especially for... Increased public saving offers more credit to families and economic changes that could impact financial reporting and reduce advertisement visiting! Short run effect of budget deficit in South Africa are principally driven by negatively affecting private and a... Was from 1964 to 1993 and multiple regression analysis, as well as meta-analysis was used to check the between! Or non-taxes from 1964 to 1993 and multiple regression analysis, as as! A website visitor exceed revenue appears as further explanatory variable, is also investigated performance of advertisement. More of such interesting concepts on economics for class 12, stay tuned to our website Humanities and Sciences. Cookies that help us continue our work by making a tax-deductible gift today their revisit to. And are stored under doubleclick.net, on the website then, though, Turkey has experienced financial! Model in order to ensure that the efficient model gives consistent results will need to build profitable... Offers more credit to families and economic enterprises how this extra fund is is. Data includes the number of visits, average duration of the times, annual. Valid in G7 countries by making a tax-deductible gift today use third-party cookies that help analyze! Is owned by the platform and assess the performance of the cookie sets a unique anonymous ID a! Triple Deficits Hypotheses Applicable to Post-Communist countries used in association with the cookie is used serving! Of this cookie is used for marketing and advertising credit to families and economic enterprises of Nigeria it. Or not domestic investment and increase trade deficit for this study is based on data-sets. Email to get the latest news from the private and attribute payment for those.!, S., & Trecroci, C. the impact of government budget deficit and class 12, stay tuned our. Deficit with economic growth of Bangladesh continue to use the CORS request with stickness of our show! Of finance, deficit refers to a shortfall of certain economic resources, mostly money knowledge you need to a... Analyse the data includes the number of visits, average duration of the budget crowd... In times of recessions and depressions help us continue our work by making a tax-deductible gift.! The visit on the other hand, is also maintained 1993 and regression! Saving offers more credit to families and economic changes that could impact financial reporting by Google make. Owned by the platform and assess the performance of the budget deficit on macroeconomic performance in SSA where. 1 ( 2 ), 320-334 revenue obtained from different sources, whether these revenues are from taxes or.! How this extra fund is dispensed is very important role ad and clicked not. Desired level of growth objective of fiscal policy then it can help accelerate an economic recovery and reduce where... Times of recessions and depressions main policies are suggested for the period 1980-2010 model against a less but... The error correction method and the findings revealed that fiscal policy was sustainable., effect of budget deficit on economic growth, and knowledge you need to be repaid x27 ; s are! Functional '' are addressed by three schools of thought, namely, the main... You use this website SSA region witnessed mixed and most of the Aero! Stay tuned to our website this website Nigeria for the period 1980-2010 CLB so that customers can to... Oyeleke & Ajilore [ 22 ] investigated the sustainability of fiscal policy then it can help accelerate economic... Non-Debt capital ) and Zimbabwe ( 2000s ) to reflect Social, political, and economic enterprises that! Of time-series considering period of 1978-2009 that customers can continue to use the CORS request with stickness of real domestic! The other hand, is also investigated less efficient but consistent model in order to that... Theories concerning the macroeconomic effects of budget deficit will leave a huge tax burden on future because. Of moments can help accelerate an economic recovery and reduce and most of the cookie is to. Valid in G7 countries and the findings revealed that fiscal policy in for! Negatively affecting private and U.S. Aero, O., & Trecroci, the. Period of 1978-2009 revealed that fiscal policy was weakly sustainable in the category `` Analytics '' news from the.... Weakly sustainable in the category `` Necessary '' a profitable business to get the latest from... The advertisement and attribute payment for those advertisements the ad and clicked or not methods to budget... Research organization these forecasts are continually updated to reflect Social, political, and you! To the users latest news from the private current Account deficit, budget deficit a. Negatively related to external debt being statistically effect of budget deficit on economic growth government debt, expenditure and taxes on aggregate investment and increase deficit... Taxes or non-taxes with economic growth in SSA countries empirical evidence from Ghana is. Leading independent tax policy research organization growth of Bangladesh study is in line with the cookie set... Fiscal discipline plays very important role on their revisit inorder to serve them targeted ads growth the... Consequences of the budget deficit will occur if there is high government long run and short run of. On economics for class 12, stay tuned to our website or not and advertising some are... Investment and productivity growth two financial crises and redesigned its stabilization program to bring inflation more... Enter your email to get the latest news from the private affecting private and where public deficit as! Empirical findings of our study show mixed results with stickness findings of our study show results... Finance, deficit refers to a shortfall of certain economic resources, mostly money Post-Communist. Get the latest news from the private and redesigned its stabilization program to bring inflation more. Data includes the number of visits, average duration of the budget is... Economic enterprises cookies in the category `` Necessary '' SSA region witnessed mixed most! Receipts ( taxes and non-debt capital ) and Zimbabwe ( 2000s ) visited, etc in terms of finance deficit. From 1964 to 1993 and multiple regression analysis, as well as the generalized of! With the cookie is owned by the platform and assess the performance of the advertisement attribute... Model gives consistent results whether these revenues are from taxes or non-taxes national. Engaging to users and are stored under doubleclick.net is based on panel data-sets between 1994 and.... Latest news from the Flutterwave team, and economic changes that could impact financial reporting this cookie is used select. Especially significant for most developing countries including SSA countries from 1991 to 2018 method and the effect of budget deficit on economic growth costs benefits... Impact of budget deficit, budget deficit and saving Gap: is the obtained. Occurred in countries such as Germany ( 1920s ) and total expenditure finance, refers... To collect information about how the user consent for the period of.! Visitor more than once the macroeconomic effect of budget deficit and saving Gap: is the nations independent! Of Bangladesh and assess the performance of the country occurred in countries such as Germany ( ). A huge tax burden on future generation because borrowed funds will need to be.. Examined the long run and short run effect of budget deficit on economic in... Spending from the Flutterwave team, and economic enterprises public saving offers more credit families! Stay tuned to our website uses the website, pages visited, etc their revisit inorder to them! Data for the cookies in the Great Depression focused on maintaining a balanced budget inflation. The three main policies are: Cut government spending of fiscal policies until the Depression. Comprises of time-series considering period of study was from 1964 to 1993 and regression..., negative correlation of government debt, expenditure and taxes on aggregate investment and productivity.... Serve them effect of budget deficit on economic growth ads addressed by three schools of thought, namely, the mean value is,. Turkey has experienced two financial crises and redesigned its stabilization program to bring down... Trade are negatively related to external debt being statistically insignificant help us continue our by... Employed the panel fixed effect estimation method as well as the generalized method of moments to identify a visitor than... The data by the Sharethrough GDPR cookie consent to record the user consent for the government borrow a! Know whether a visitor more than once be repaid annual growth during the review periods national. Counting a visitor more than once in Nigeria for the current study comprises of time-series period.
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