academy of economic studies doctoral school of finance and banking

Academy of Economic StudiesAcademy of Economic Studies Doctoral School of Finance and Banking Doctoral School of Finance and Banking

Economic Growth, Fiscal Size and Volatility: A Economic Growth, Fiscal Size and Volatility: A Panel Assessment for EU Developing EconomiesPanel Assessment for EU Developing Economies

MSc Student: Dan Matei

Supervisor: PhD Professor Moisa Altar

Dissertation paper outline

Introduction

Literature review

Methodology

Empirical Analysis

- Data

- Results and Discussion

- Robustness Analysis

Conclusions

Bibliography

Introduction In the EU area, the gradual loss of monetary policy as an instrument to offset country-specific

disturbances naturally places the onus on fiscal policy. European countries would thus be facing a difficult trade-off between maintaining large governments to ensure sufficient automatic fiscal stabilization and leaner ones to ensure efficiency and growth (there could be a tension between the ‘Maastricht’ and the ‘Lisbon’ goals).

Debate between the need to ensure adequate macroeconomic stabilization and the reduction in the size of governments that often accompanied efforts to boost market efficiency and promote long-term growth

The importance of high-quality fiscal policies for economic growth, a firm control and, where appropriate, reduction in public spending have been brought to the forefront by a number of developments over the past decades

With a view to understand how to limit government size and restrict fiscal policy volatility, it is quite relevant to assess which components of general government spending and revenue (both in terms of size and volatility) have a negative effect on growth. Although the effect of government expenditure volatility has been widely analyzed, the effect of volatility in the components of public spending and revenue has not so far been widely addressed in the literature

By regressing economic growth on budgetary items and on a set of other relevant variables we evaluate whether the allocation of taxes and public expenditures has been useful to promote growth in a panel of European countries for the period 1996-2007. The outcome of the paper suggests that for several components of general government revenue and spending both size and volatility measures have a negative effect on growth, and that restrictions on these variables should be pursued.

Literature review Wagner’s Law- the long-run tendency for government spending as a share of some national income

aggregate such as GDP to grow in the course of economic development has become more or less a stylized fact in public finance

Keynesian perspective- public expenditure should act as a stabilizing force and move in a countercyclical direction

Barro (1990) constitutes one of the first attempts at endogenizing the relationship between growth and fiscal policies, distinguishing four categories of public finances: productive vs. non-productive expenditures and distortionary vs. non-distortionary taxation

Levine-Renelt (1992) found that most results from earlier studies on the relationship between long-run growth and fiscal policy indicators are fragile to small changes in the conditioning set

Easterly-Rebello (1993) public transportation, communication and educational investment are positively correlated with growth per capita and aggregate public investment is negatively correlated with growth per capita

Poot (1999) in a survey of published articles in 1983-1998 did not find conclusive evidence for the relationship between government consumption and growth, still found empirical support for the negative effect of taxes on growth and reported definitive results on the positive link between growth and education spending

Afonso and Tanzi (2005) finds that a well-defined institutional framework and ‘high quality’ public finances are important to support the long-run growth. Studying the efficiency of the public sectors of 23 industrialized OECD countries, they noted that countries with large public sectors show more equal income distribution, while countries with small public sectors report significantly higher indicators than countries with medium-sized or big public sectors.

Literature review (contd.)

Fiscal volatility - There is little consensus on the sign of the effects of government expenditure volatility on growth, restrictions on government expenditure volatility may have both positive and negative effects on long-run growth. A crucial variable to determine the sign of these effects is business-cycle volatility

Ramey and Ramey (1995) find a negative relation between the business-cycle volatility and growth in cross-country data and this relation is robust to various controls

Aghion (2005) find that the effect of volatility on growth survives when one controls for the level of financial development, leaving open the possibility that volatility has a causal effect on growth (the negative relation between volatility on growth tends to be stronger in countries with lower financial development )

On the mechanism through which fiscal policy can affect business cycles, Lane (2003) shows that restrictions on government expenditure, and thus lower government expenditure volatility, result in a slower adjustment of the economy to unexpected shocks

In contrast, Fatas and Mihov (2003) present evidence that aggressive use of discretionary fiscal policy generates undesirable output volatility and leads to lower growth. Not only discretionary changes but also transitory (and cyclical) changes in fiscal policy may increase output volatility and thereby reduce output growth

Ayagari, Christiano and Eichenbaum (1992) temporary changes in fiscal policy may have a significant impact on interest rate volatility and this, in turn, will reduce long-run growth. Furceri (2007b) analyzing a panel of 99 countries from 1970-2000, shows that a 1 percent increase in government expenditure business cycle volatility determines a decrease of 0.78 percentage points in the long-run rate of growth

The survey of different empirical studies shows that an objective and unambiguous overall catalogue of “high quality”-expenditure items is not feasible. There is no cookbook for growth. Economics gives an idea of the major ingredients, but it does not clearly tell the recipe.

Methodology The inclusion of particular control variables in a growth regression can

wipe out the negative bivariate relationship between growth and the measure of government size (Easterly and Rebelo, 1993)

Levine and Renelt (1992) found that robust cross-country growth correlates to the average investment share of GDP, the initial log of GDP per capita, initial human capital and the average growth rate of the population

Initial income is often used to test the convergence hypothesis

Opening to trade is beneficial to economic growth on average, allows the dissemination of knowledge and technological progress, still the aftermath of trade openness varies considerably across countries and depends on a variety of conditions related to the structure of the economy and its institutions

Output volatility: tends to have negative effects on long-term economic growth, welfare, and income inequality, particularly in developing countries. As main justifications for short-run “stabilization” policies (policies aimed at reducing volatility, The World Bank and the IMF routinely advise governments to reduce fluctuations to achieve higher growth rates

Methodology (contd.) Time span- cross-country growth regressions make use of large time spans (30- 40 years) and

consider the average value of growth determinants over this time period. As argued by Afonso and Furceri (2008), this could raise problems such as endogeneity and significant simultaneity. Cross-section analysis over long time spans may fail to capture growth causality effects of taxation

The analysis is focused on combined cross-section time-series regressions using three four-year periods from 1996 to 2007, and we use pooled country and fixed effects

The model- two growth equations respectively for general government revenue and expenditure:

gi,t = α1 + β1Ri,t +γ1 R2i,t +δ1σR

i,t +φ1Xi,t +εi,t (1)

gi,t = α2 + β2Ei,t +γ2 E2i,t +δ2σE

i,t +φ2Xi,t +εi,t (2)where the index i (i=1, …, 10) denotes the country, the index t (t= 1996-1999, 2000-2003, 2004-2007) indicates the

period, α1 and α2 stand for the individual effects to be estimated for each country i. g is the growth rate of real GDP per capita, R is the vector of general government revenue variables as percentage of GDP, E is the vector of general government expenditure variables as percentage of GDP, σR is the vector of revenue volatility variables, and σE is the vector of expenditure volatility variables,X is a vector of control variables (initial level of output per capita, output volatility, investment share, population

growth and openness). Both regressions also include square terms for R and E with a view to test the possible effect on economic growth of

different government sizes.

Empirical analysis- Data

Sources of data are European Commission AMECO (Annual Macro- Economic

Data), supplemented by EUROSTAT database, covering the period 1995-2007 The panel consists in 10 EU members and emerging economies: Bulgaria,

Czech Rep, Estonia, Hungary, Lithuania, Latvia, Poland, Romania, Slovenia and Slovak Rep

Variable Definition of the variable Abbreviation Growth rate (g)

The four year average in the growth rate of GDP per head of population (PPS EU25=100)- AMECO

GS

Initial output The log of real GDP per head of population at the beginning of each time period - AMECO

GDP

Population growth

The average of the annual log difference of total population AMECO

POP

Investment share of GDP

Share of total economy investment in real GDP- AMECO

INV

Openness Share of exports and imports of goods and services at 2000 prices in real GDP- AMECO

OPEN

Output volatility

Standard deviation in each period of the cyclical component of real GDP- AMECO

VOL

Fiscal variables

Total Revenue (R), Direct Taxes (RD), Indirect Taxes (RI), Social Contributions (RC), Total Expenditure (EX), Government Consumption (EY), Government Investment (EI), Transfers (ET), Subsidies (ES)-current prices as in ratios to current GDP

R, E

Empirical analysis- Data (contd.)

Advantages homogeneity - all 10 EU countries are emerging market economies data quality and cross-country comparability are likely to be of a good standard for the

EU members (fiscal variable in ESA 95) Drawbacks fiscal data availability for the studied economies is rather limited only 3 observations per country for each variable, employing 4 year growth periods Two measures for both government revenues and expenditures (the aggregates and

components): the relative share of each variable as a percentage of GDP and the volatility of the cyclical component for each fiscal variable

For volatility measures, all fiscal variables are converted into constant prices using the GDP deflator. To compute the cyclical component for each fiscal variable, Hodrick and Prescott Filter was set with the smoothness parameter (λ) equal to to 6.25. In this way, as pointed out by Ravn and Uhlig (2002), the Hodrick-Prescott filter produces cyclical components comparable to those obtained by the Band-Pass filter.

The analysis excludes those fiscal variables that have a residual importance on the public budget or whose interpretation is not clear

Empirical analysis- Data (contd.)

Table B. Total public revenue and expenditure as of % in GDP

Revenues Expendit Revenues Expendit Revenues Expendit Revenues Expendit

1996-1999 2000-2003 2004-2007 Change in pp Bulgaria 41.89 47.45 42.99 45.12 40.70 38.29 -1.19 -9.16

Czech R 38.84 42.80 39.28 44.98 41.33 44.01 2.49 1.21 Estonia 38.61 39.19 35.92 35.45 36.19 33.61 -2.42 -5.59 Hungary 45.75 51.91 42.77 48.55 42.96 50.21 -2.79 -1.70 Latvia 38.06 38.77 33.40 35.58 36.41 36.82 -1.65 -1.95 Lithuania 36.79 42.07 33.49 35.98 33.19 34.12 -3.60 -7.95 Poland 42.11 46.13 38.57 43.43 39.09 43.05 -3.01 -3.08 Romania 46.10 49.96 37.53 40.40 33.06 34.84 -13.04 -15.11 Slovenia 43.73 45.99 44.20 47.45 44.00 45.26 0.27 -0.74 Slovak R 41.76 48.93 37.63 45.04 34.74 37.48 -7.02 -11.45

-15

-10

-5

0

5

10

15

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

BG CZ EE LV LT HU PL RO SI SK

Results and DiscussionAutor (s) Data period and

coverage Estimation method / model

Main results

Devarajan, Swaroop and Zou (1996)

43 developing countries, yearly data, 1970-1990

Fixed-effects (Five-year forward moving average dep. Variable)

Excess public capital expenditure for their data set.

Kneller, Bleaney and Gemmell (1999)

22 OECD countries, yearly data, 1970-1995

Fixed-effects, random effects (Five-year averages)

Negative effect distortionary taxation Negative impact non productive expenditures (social transfers) Negative effect deficit

Bassanini and Scarpetta (2001)

21 OECD countries, 1971- 1998

Pooled Mean Group Estimator

Positive impact of public investment Unclear effect of public current expenditure. Negative impact of taxation

Folster and Henrekson (2001)

23 OECD countries, 1970- 1995

Fixed-country and period effects (five-year averages)

Significant negative effect for total government spending; negative effect of total taxes.

Bose, Haque and Osborn (2003)

30 developing countries, decade averages, 1970- 1990

OLS (Decade average dep var.)

Identify the importance of education and government spending for economic growth in their set of countries. Also find a significant correlation with capital expenditure.

Romero de Avila and Strauch (2007)

15 European countries, 1960- 2001

Long-term coefficients estimated by variables in levels

Negative impact of total expenditure on growth.Positive impact of direct taxation, indirect taxation and public investment. Negative effect of government consumption, transfers, and social security revenues.

Afonso and Furceri (2008)

EU 15 and OECD Fixed-country and period effects (five-year averages)

Negative impact of total revenue and expenditure (size and volatility) on growth.

Likelihood Ratio Test (LR)

Dependent Variable: ?GS

Method: Pooled Least Squares

Date: 07/01/08 Time: 12:01

Sample: 1 3

Included observations: 3

Cross-sections included: 10

Total pool (balanced) observations: 30

Variable Coefficient Std. Error t-Statistic Prob.

C 79.62294 24.66883 3.227674 0.0066

?GDP -8.576761 2.715306 -3.158672 0.0075

?OPEN 0.043079 0.015015 2.869154 0.0132

?INV 0.479516 0.086206 5.562420 0.0001

?POP 0.101703 0.873380 0.116448 0.9091

?VOL -2.015172 17.03405 -0.118303 0.9076

?RT -0.252000 0.103690 -2.430307 0.0303

?RV -53.13048 14.92202 -3.560543 0.0035

Fixed Effects (Cross)

BG_--C 2.891983

CZ_--C -2.231262

EE_--C 1.752868

LV_--C 3.411685

LT_--C 1.977317

HU_--C -3.365424

PL_--C -0.976839

RO_--C 0.862814

SI_--C -0.740042

SK_--C -3.583100 Effects Specification

Cross-section fixed (dummy variables)

R-squared 0.941045 Mean dependent var 2.965056

Adjusted R-squared 0.868486 S.D. dependent var 2.614630

S.E. of regression 0.948193 Akaike info criterion 3.028569

Sum squared resid 11.68792 Schwarz criterion 3.822581

Log likelihood -28.42853 F-statistic 12.96926

Durbin-Watson stat 2.105775 Prob(F-statistic) 0.000017

Dependent Variable: ?GS Method: Pooled Least Squares Date: 07/01/08 Time: 12:05 Sample: 1 3 Included observations: 3 Cross-sections included: 10 Total pool (balanced) observations: 30


C 72.35072 26.15442 2.766290 0.0160 ?GDP -7.452652 2.940737 -2.534280 0.0249

?OPEN 0.033865 0.018252 1.855477 0.0863 ?INV 0.287571 0.106261 2.706262 0.0180 ?POP -0.645998 1.010027 -0.639585 0.5336 ?VOL -3.420679 20.46026 -0.167186 0.8698 ?EX -0.206032 0.104064 -1.979866 0.0693 ?EV -35.90981 12.73928 -2.818825 0.0145

Fixed Effects (Cross) BG_--C 0.312628 CZ_--C -0.891112 EE_--C 0.331291 LV_--C 2.287829 LT_--C 1.400373 HU_--C -1.315973 PL_--C -0.813290 RO_--C -1.118800 SI_--C 0.911902 SK_--C -1.104848

Effects Specification Cross-section fixed (dummy variables) R-squared 0.921397 Mean dependent var 2.965056

Adjusted R-squared 0.824654 S.D. dependent var 2.614630 S.E. of regression 1.094860 Akaike info criterion 3.316215 Sum squared resid 15.58333 Schwarz criterion 4.110227 Log likelihood -32.74322 F-statistic 9.524194 Durbin-Watson stat 2.247730 Prob(F-statistic) 0.000099

Total general gov revenue and Growth Total general gov expenditure and Growth



Variable Coefficient Std. Error t-Statistic Prob. C 92.10316 22.21132 4.146677 0.0025

?GDP -8.140363 2.362437 -3.445748 0.0073 ?INV 0.226942 0.096309 2.356399 0.0429 ?POP 0.372617 0.785986 0.474075 0.6467

?OPEN 0.029658 0.013590 2.182393 0.0570 ?VOL 14.19782 18.43361 0.770213 0.4609 ?RC -0.869911 0.424020 -2.051580 0.0704 ?RD -0.654178 0.223529 -2.926589 0.0169 ?RI -0.100484 0.347201 -0.289411 0.7788

?RCV -92.07420 22.04242 -4.177137 0.0024 ?RDV -29.72830 15.88484 -1.871489 0.0941 ?RIV -10.83928 20.94634 -0.517479 0.6173

Fixed Effects (Cross) BG_--C 2.331263 CZ_--C -0.441158 EE_--C 1.477878 LV_--C 1.318199 LT_--C -1.305672 HU_--C -2.573520 PL_--C -0.630894 RO_--C -0.274016 SI_--C 1.136243 SK_--C -1.038323

Effects Specification Cross-section fixed (dummy variables)

R-squared 0.972638 Mean dependent var 2.965056 Adjusted R-squared 0.911834 S.D. dependent var 2.614630 S.E. of regression 0.776354 Akaike info criterion 2.527612 Sum squared resid 5.424534 Schwarz criterion 3.508450 Log likelihood -16.91418 F-statistic 15.99631 Durbin-Watson stat 2.178442 Prob(F-statistic) 0.000092



?GDP -9.630068 3.112627 -3.093871 0.0175 ?INV 0.134199 0.168179 0.797953 0.4511

?OPEN 0.035115 0.020162 1.741643 0.1251 ?POP -2.029919 1.148612 -1.767280 0.1205 ?VOL -17.68561 20.89954 -0.846220 0.4254 ?EI 0.280551 0.299895 0.935500 0.3807 ?ES -1.495720 0.920913 -1.624170 0.1484 ?ET -0.373082 0.417786 -0.892999 0.4015 ?EY -0.603592 0.242555 -2.488475 0.0417 ?EIV -9.096458 3.031519 -3.000627 0.0199 ?ESV -18.69154 7.465719 -2.503650 0.0408 ?ETV -19.74383 6.184621 -3.192407 0.0152 ?EYV 31.24314 22.41553 1.393817 0.2060

Fixed Effects (Cross) BG_--C 1.978706 CZ_--C -1.374290 EE_--C -0.261079 LV_--C 2.585113 LT_--C -1.164567 HU_--C -3.316032 PL_--C -0.628892 RO_--C -3.486577 SI_--C 5.340207 SK_--C 0.327410



Government revenue composition and Growth Government expenditure composition and Growth




C 72.36091 23.69199 3.054235 0.0092 ?GDP -8.324898 2.729112 -3.050406 0.0093

?OPEN 0.042109 0.015231 2.764765 0.0161 ?INV 0.477871 0.087510 5.460738 0.0001 ?POP 0.156597 0.884737 0.176998 0.8622 ?VOL -3.133775 17.19895 -0.182207 0.8582 ?RT^2 -0.003057 0.001322 -2.312323 0.0378 ?RV -53.35587 15.14364 -3.523320 0.0037

Fixed Effects (Cross) BG_--C 2.932885 CZ_--C -2.356132 EE_--C 1.798650 LV_--C 3.425212 LT_--C 2.099944 HU_--C -3.371045 PL_--C -1.040173 RO_--C 1.035649 SI_--C -0.958997 SK_--C -3.565992





C 64.94703 25.33219 2.563814 0.0236 ?GDP -7.107881 2.949936 -2.409504 0.0315

?OPEN 0.032386 0.018796 1.723011 0.1086 ?INV 0.287045 0.107623 2.667127 0.0194 ?POP -0.582702 1.016925 -0.573004 0.5764 ?VOL -3.999283 20.65448 -0.193628 0.8495 ?EX^2 -0.002335 0.001235 -1.890842 0.0811 ?EV -36.32117 12.87477 -2.821113 0.0144

Fixed Effects (Cross) BG_--C 0.425986 CZ_--C -1.069837 EE_--C 0.469644 LV_--C 2.278679 LT_--C 1.503218 HU_--C -1.243772 PL_--C -0.927904 RO_--C -0.936891 SI_--C 0.595419 SK_--C -1.094542



Total general revenue Size and Growth Total general expenditure Size and Growth

Robustness analysis The inclusion of country specific effects has the advantage of controlling for unobserved

country heterogeneity, it could lead to misleading conclusion in the analysis of the results Re-estimating the growth equations excluding country dummies, the results remain robust

to the change To control for a possible endogeneity problem in the regression, the equations were re-

estimated using the initial level of government spending and revenue-to- GDP ratios

Table C. Robustness control HP 6.25 HP 100 Difference -35.909** -23.922** -13.327* (-2.81) (-2.51) (-1.58) Average volatility 0.030 0.060 0.068 Effect -1.073 -1.435 -0.906 Notes: t-statistics are in parenthesis. *, **, *** - Statistically significant at the 10, 5 and 1 percent level respectively.




C 37.92442 13.25092 2.862021 0.0096 ?GDP -3.036599 1.523758 -1.992836 0.0601

?OPEN 0.007881 0.010071 0.782532 0.4431 ?INV 0.207064 0.112629 1.838455 0.0809 ?POP -2.655265 0.875854 -3.031629 0.0066 ?VOL -22.85483 24.14660 -0.946503 0.3552 ?RT -0.286801 0.096315 -2.977731 0.0074 ?RV -26.93313 21.53513 -1.250660 0.2255

Fixed Effects (Period) 1--C -0.377782 2--C -0.365811 3--C 0.743594

Effects Specification

Period fixed (dummy variables)




C 43.07583 9.965472 4.322508 0.0003 ?GDP -3.580702 1.150954 -3.111073 0.0055

?OPEN 0.016002 0.007742 2.066900 0.0519 ?INV 0.195564 0.080012 2.444184 0.0239 ?POP -1.624522 0.716700 -2.266669 0.0347 ?VOL -16.18842 17.00960 -0.951722 0.3526 ?EX -0.273875 0.054512 -5.024116 0.0001 ?EV -28.22993 11.48521 -2.457937 0.0232

Fixed Effects (Period) 1--C 0.190278 2--C -0.122914 3--C -0.067364

Effects Specification Period fixed (dummy variables)


Total general gov revenue and Growth Total general gov expenditure and Growth including only period dummies including only period dummies




?GDP -9.322428 3.458115 -2.695812 0.0183 ?OPEN 0.043165 0.016551 2.608043 0.0217

?INV 0.488989 0.099072 4.935688 0.0003 ?POP 0.103089 0.966134 0.106702 0.9167 ?VOL -4.715752 19.05833 -0.247438 0.8084 ?RT0 -0.201735 0.125387 -1.608905 0.1316 ?RV -70.17708 18.62933 -3.767021 0.0024


Effects Specification Cross-section fixed (dummy variables)

R-squared 0.928498 Mean dependent var 2.965056 Adjusted R-squared 0.840495 S.D. dependent var 2.614630 S.E. of regression 1.044235 Akaike info criterion 3.221531 Sum squared resid 14.17554 Schwarz criterion 4.015543 Log likelihood -31.32296 F-statistic 10.55074

Durbin-Watson stat 2.146637 Prob(F-statistic) 0.000056



C 65.24022 26.81962 2.432556 0.0302 ?GDP -7.147506 3.085459 -2.316513 0.0375

?OPEN 0.036034 0.019274 1.869524 0.0842 ?INV 0.319227 0.109559 2.913749 0.0121 ?POP -0.601574 1.064831 -0.564948 0.5817 ?VOL -12.39607 20.51973 -0.604105 0.5562 ?EX0 -0.115351 0.076828 -1.501428 0.1571 ?EV -38.66577 13.56090 -2.851269 0.0136




Total general gov revenue and Growth Total general gov expenditure and Growth initial share initial share

Conclusion

The overall results suggest that both fiscal size and volatility tend to hamper growth in EU developing economies

A percentage point increase in the share of total revenue (expenditure) would reduce output growth by 0.25 and 0.21 percentage points respectively, for the EU developing countries

Among total revenue the variables that are most detrimental to growth, both in terms of size and volatility, are direct taxes and social contributions

Among government outlays, subsidies and government consumption have a significantly negative impact on growth, government investment and transfers does not significantly affect growth

In terms of volatility, the government transfers and public subsidies volatility have the largest negative effect on growth in the sample, in addition the investment volatility have a negative and statistically significant effect on growth in the EU developing countries

Conclusion (contd.) Restrain in government consumption and subsidies enhances

economic growth, on the revenue-side, contributions to social security and direct taxation seem to be an obstacle for higher growth

The result of this analysis should be taken with some prudence and the estimated elasticities have to be analyzed with concern

Insightful results for policy makers when deciding which components of public finances to adjust

The national policies appear to be a complex package and future researchers may wish to focus on interactions and synergies among fiscal policies as opposed to the influence of any particular variable

The analysis can be improved in several ways: the channels through which the composition of the public budget

affects economic growth may be addressed in a specific context; one could investigate the optimal size and the nature of the

relationship between the role of the various components of government spending and revenue and growth;

the decomposition of public expenditure may be extended to include transfers between the different levels of government and transfers from supranational levels of government (European Commission)

References Afonso, A. and D. Furceri (2008), “Government size, composition, volatility and economic growth”, European Central

Bank Working Paper no. 849. Afonso, A., L. Schuknecht, and V. Tanzi (2005), “Public Sector Efficiency: An International Comparison”, Public

Choice, 123 (3-4), 321-347. Afonso, A., W. Ebert, L. Schuknecht, and M. Thöne (2005), “Quality of public finances and growth,” European

Central Bank Working Paper n. 438. Aghion, P., G. Angeletos, A. Banerjee, and K. Manova (2005), “Volatility and Growth: Credit Constraints and

Productivity-Enhancing Investment”, NBER Working Papers, 11349. Aghion, P. and I. Marinescu (2007), “Cyclical budgetary policy and economic growth: What do we learn from OECD

panel data?”. Ayagari, S., L. Christiano, and M. Eichenbaum (1992), “The Output, Employment, and Interest Rate of Government

Consumption”, Journal of Monetary Economics, 30, 73-86. Barro, R. and X. Sala-i-Martin (1995), Economic Growth. McGraw-Hill, New York. Bird, R. (1971), “‘Wagner’s law: a pooled time-series, cross section comparisons,” National Tax Journal, 38, 209-

218. Bose, N., M. Haque, and D. Osborn (2003), "Public Expenditure and Economic Growth: A Disaggregated Analysis for

Developing Countries", Centre for Growth and Business Cycle Research Discussion Paper Series (University of Manchester), No. 30.

Cavallo, A. (2007), “Output volatility and openness to trade: A reassessment”, Inter-American Development Bank, Working paper n.604. de Ávila, D. and R. Strauch (2003), “Public finances and long-term growth in Europe evidence from panel data analysis” ECB Working

Paper N. 246. Easterly, W. and S. Rebelo (1993), “Fiscal Policy and Economic Growth: An Empirical Investigation,” Journal of Monetary Economics 32

(3), 417-458. Fatás, A. (2002), “The Effects of Business Cycles on Growth” in Loayza, N. and R. Soto, (eds.) Economic Growth: Sources, Trends and

Cycles, Central Bank of Chile.

Fatás, A. and I. Mihov (2003), “The Case for Restricting Fiscal Policy Discretion”, Quarterly Journal of Economics, 118, 1419-1447

References (contd.) Fölster, S. and M. Henrekson (2002), “Growth effects of government expenditures and taxation in rich countries”,

European Economic Review 45 (8), 1501-1520. Furceri, D. (2007b), “Is Government Expenditure Volatility Harmful for Growth? A Cross-Country Analysis,” Fiscal

Studies 28 (1), 103-120. Hemming, R., M. Kell, and S. Mahfouz (2002), “The Effectiveness of Fiscal Policy in Stimulating Economic Activity

- A Review of the Literature,” IMF Working Paper No.02/208. Hodrick, R. and E. Prescott, (1997), “Postwar U.S. Business Cycles: An Empirical Investigations”, Journal of Money,

Credit and Banking, 29(1), 1-16. Kneller, R., M. Bleaney, and N. Gemmell (1999), "Fiscal policy and growth: evidence from OECD countries", Journal

of Public Economics 74, 171-190. Lane, P. (2003), “The Cyclical Behavior of Fiscal Policy: Evidence from the OECD”, Journal of Public Economics,

87, 2261-2275. Levine, R. and D. Renelt (1991), “Cross-Country Studies of Growth and Policy”, Macroeconomic Adjustment and

Growth Division, Country Economics Department World Bank Working Paper no. 608. Levine, R. and D. Renelt (1992), “A Sensitivity Analysis of Cross-Country Growth Regressions”, American Economic

Review, 82, 942-963. Poot, J. 1999, "A meta-analytic study of the role of government in long-run economic growth,"

ERSA conference papers, European Regional Science Association Ramey, G. and V. Ramey (1995), “Cross-country evidence on the link-between volatility and growth”, American

Economic Review, 85, 1138-1151. Ravn, M. and H. Uhlig (2002), “On Adjusting the Hodrick-Prescott Filter for the Frequency of Observations”, Review

of Economics and Statistics, 84, 371-380. Rodriguez, F. and D. Rodrick (1998), “Trade policy and economic growth: A skeptics guide to the cross-national

evidence”, Journal of Political Economy, 106(5), 997-1032. Sala-i-Martin, X. (1997), “I Just Ran Two Million Regressions”, AEA Papers and Proceedings 87, 178-183. Scarpetta, S., A. Bassanini (2001), “Economic growth in the OECD area: Recent trends at the aggregate and sectoral

level”, OECD Working Papers no. 248.

academy of economic studies doctoral school of finance and banking

Documents

bankingeconomic growth

longterm growth

fiscal size

fiscal policy volatility

components of public

public expenditures

government size

effect of volatility