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The objective of this study was to examine the budget deficit impact on economic growth in Tunisia over the period 1970-2018. We proposed a theoretical model highlighting linear and non-linear effects of the budget deficit on economic growth. Using the Autoregressive Distributed Lag model, this research work draws a long-run balance between budget deficit and economic growth. In addition, we used the Threshold Regression model to detect the threshold variation at which the budget deficit has a negative impact on economic growth. The results show that the budget deficit has a negative and significant effect on this growth over the short-run rather than the long one. Our estimations, therefore, support the existence of a non-linear relationship between budget deficit and economic growth. We found that, starting from a threshold variation equal to 1.126%, the budget deficit negatively affects the Tunisian economic growth.

This study has employed (bounds) Autoregressive Distributive Lag (ARDL) cointegration and Granger causality tests to empirically establish the relationship between budget deficits, money supply and inflation in Tanzania during the period 1967-2018. The study established inflation, money supply and budget deficit, as conditioned by output were cointegrated. Nonetheless, the null hypotheses that budget deficit Granger cause inflation and money supply Granger cause inflation both over the short and long-run periods. In contrast, the null hypothesis that either inflation or money supply Granger cause budget deficit over the short-run was accepted. Even though, the causal effect of money growth on inflation was positive and that of budget deficit was unexpectedly negative. The results also revealed the causal effect of economic growth on inflation was negative and statistically significant over short-run and long-run. The findings emphasizes importance of monetary policy in macroeconomic stabilization, and also prudent fiscal policy and attendance to structural factors to achieve price stability.

Government deficits are considered to prevail because the public is ill-informed about the cost of deficits. To examine the veracity of this statement, this experiment focused on the effect of framing on support for the financial (im)balance of a government’s budget. Participants were required to make an ideal plan by modifying an original budget plan for the Japanese government whose deficit finance is the most prevalent. among mature democracies. They increased rather than decreased deficits when the debt-cost of the real government’s budget was known. They increased deficits when they were shown the list of revenues (losses in tax payments) before they saw the list of expenditures (gains from benefits and services) than vice versa. Support for financial balance was higher when participants had shaped their perception of chronicity of the government debt in daily-life. The effects of loss-framing, however, remained significant when the influence of the perception was controlled.

This paper inquires the following research question that “to what extent, do election years have explanatory power to predict central and local governmental administrative units’ budget deficits in electoral districts?” Theoretically, this research’s theoretical part utilizes the electoral budget cycle approach that government party/parties increase(s) budgetary expenditures and decrease(s) taxation before the elections for re-election prospect. This paper’s arguments are twofold. First, classic electoral budget cycle disregards temporal order in elections that between two first-order elections (general elections in parliamentary systems and presidential elections in presidential systems), there are second-order elections (local elections at the district/province/city level in parliamentary systems and legislative elections in presidential systems). Second, the classic electoral budget cycle approach deals with a monolithic conception of the incumbent party in parliamentary democracies such that there is no distinction between single party majoritarian and coalition government. Methodologically, this research employs time-series cross-section data and resorts to fixed-effects model. This paper compiles a new dataset on local government spending-revenue for all Turkish municipalities and special provincial administrations at the district level from Turkish Statistical Institute library’s scanned archive documents and on incumbent candidate and party (re-)election between 1980 and 2007 in general elections. Findings can be compartmentalized into three. Firstly, there are electoral budget cycles in both general and local elections. Secondly, government type matters in electoral budget cycles due to clarity of the fiscal responsibility. Thirdly, there are electoral credit cycles in agriculture and real estate to supplement electoral budget deficits.

The 2014 mid-term election that put Republicans in control of Congress reduced any chance of federal legislative action to limit greenhouse gases such as carbon dioxide from electric power plants. However, the executive branch already has authority from the U.S. Supreme Court to limit emissions under the Clean Air Act. In June 2014, the Obama Administration issued its proposed Clean Power Plan, which sets a specific limit on emissions for each state and then allows each state to decide how to meet its target. Comments are invited on this plan, and President Obama can modify the executive order before it is issued in June of 2015. The U.S. Clean Power Plan uses a formula to determine the target for each state, expressed as a maximum emission rate per unit of electricity, but it provides states with exibility regarding how to meet that target. It even allows states to convert that emission rate target to an absolute quantity of emissions and then to sell permits for that many tons of carbon dioxide. Any state that chooses to comply with the federal mandate by selling permits can collect revenue for the state, and this revenue can be used for additional spending, to cut other taxes, or to reduce the projected budget deficit. Indeed, many states since the Great Recession are still facing major deficit projections. This federal mandate provides an opportunity for states like Illinois to address some significant budget problems. In Illinois, for example, projections of the deficit under current law increase from $1 billion in FY2014 to $14 billion in FY2025. Our purpose here is to calculate the fraction of several states’ projected future deficits that can be offset by collecting their own permit revenue.

This paper investigates empirically the nexus between budget deficits, money supply and inflation in Tanzania by employing data for the period 1967–2010. Pair-wise Granger causality test established a one-way causal effect, running from inflation to budget deficit and the monetary base. These findings were supported by results from the Vector Error correction model (VECM) estimated. It is shown that there exist a significant inflation inertia and causal effect on budget deficit over the short-run. The VECM results showed that shift in monetary policy regime exerted a significant effect on inflation and budget deficits. Innovation of the ratio of budget deficit to money balances as alternatives for the traditional budget deficit to income ratio was found to lack significant effect on the results. Results are very indicative but highlight the importance of containing inflation to check its effect on budget deficits over the short-to long-run periods. The results also suggest that robust econometric results can be obtained by deflating budget deficits by monetary aggregates or income.

During the last thirty years most OECD countries have accumulated large public debts. The same period has been characterized by a considerable increase in the concentration of income at the top of the distribution and by substantial cuts to taxation imposed on high incomes. The paper argues that the concentration of income at the top, along with the decreasing taxation imposed on top incomes, may have affected OECD countries' fiscal performances in recent decades. Using a panel of 17 OECD countries between 1975 and 2005, the paper presents the first reported evidence of a positive relationship between the top 1 percent income share and budget deficits. Moreover, the disaggregated analysis of the budget components suggests that such result is due to a negative relationship between concentration of income at the top and budget revenues.

Fiscal policies in Ghana have consistently resulted in high deficits accompanied by low and uneven economic growth path for a long period of time. 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. The study found an inverse long run relationship between budget deficit and economic growth, especially as the deficits have often been used to finance recurrent expenditures, suggesting that high budget deficit, driven by recurrent expenditures, slows down economic growth. In the short run, however, the author found the budget deficit to promote economic growth, but a deficit beyond the threshold level of 4% of GDP was found to be detrimental to economic growth. This result was robust and supports the West African Monetary Zone’s (WAMZ) primary fiscal convergence criterion. The study therefore noted that fiscal restraint to the level below the threshold would both stimulate a sustainable economic growth and overall stability in Ghana.

Currently the U.S. is experiencing record budget and current account deficits, a phenomenon familiar from the "Twin Deficits" discussion of the 1980s. In contrast, during the 1990s productivity growth has been identified as the primary cause of the US current account deficit. We suggest a theoretical framework which allows to evaluate empirically the relative importance of budget deficits and productivity shocks for the determination of the current account. Using a sample of 21 OECD countries and time series data from 1960 to 2003 we find little evidence for a contemporaneous effect of budget deficits on the current account, while country-specific productivity shocks appear to play a key role. JEL Classification: E62, F32, F41

It is generally recognized that, in the absence of policy changes, the U.S. faces a long-term fiscal challenge. But, as a result of the 2007-09 recession, the U.S. is currently facing an unemployment crisis — the unemployment has been above or near 8 percent since February 2009. Furthermore, economic growth has not been great enough to add enough jobs to keep up with the growth of the labor force. The short-term unemployment crisis and the long-term fiscal problems will require that Congress and the President to make difficult choices with regard to federal spending and revenues over the next several years. This chapter examines the U.S.’s long-term fiscal problem within the context of the current economic situation and explores issues that should be considered in addressing these problems. There have been a plethora of formal and informal panels that have examined the fiscal future and developed possible policy packages, often using CBO’s budget options report as a Chinese menu in choosing plan provisions. Given what the government does, it will be virtually impossible to solve the long-term fiscal problem through spending cuts alone. Additionally, using tax increases alone to solve the long-term fiscal problem is probably politically unpalatable. Therefore, some combination of the two will have to be used to bring deficits and debt under control. There is no lack of options that could be adopted to address the long-term fiscal problem. The major obstacles are political.

Laubach provides a critical review of the empirical literature that focuses on the effects of budget deficits on interest rates. The main empirical problem in estimating this relationship is to control for other factors determining real interest rates. In particular, the simultaneous response of monetary policy and automatic stabilisers can in principle mask the effect of discretionary fiscal policy on interest rates. The paper stresses that simple regressions of current interest rates on current budget deficit yield ambiguous results which are consistent with the view that endogeneity problems in such regressions are pervasive. The paper considers different solutions for coping with these problems. It shows that when endogeneity problems are properly accounted for, mainly by adequately considering expectations of both deficits and interest rates, available studies tend to find strong evidence that increases in budget deficits raise interest rates.

This paper tests empirically the strategic explanation of budget deficits suggested by Tabellini and Alesina [13] and Persson and Svensson [12]. Tabellini and Alesina suggest that governments with different political orientation provide different public goods. The model predicts that: a) public good provision follows a political pattern; b) the incumbent that anticipates her defeat at the next election runs budget deficits to tie the hands of the future government. Persson and Svensson suggest that liberal governments prefer more public good provision than conservative ones. The model predicts that: a) the conservative (liberal) incumbent that anticipates her defeat at the next election runs budget deficits (surpluses); b) budget imbalances have a political color. Using U.S. and pooled data for sixteen OECD countries, we find little evidence that the incumbent’s probability of being voted out of office explains budget deficits, that the provision of public goods follows a political pattern or that budget imbalances have a political color.

The notion of "starving the beast"' has been an important justification for fiscal programs emphasizing revenue reductions since the mid-1970s. While the idea of restraining government spending by limiting government revenues has an intuitive appeal, there is convincing evidence the reducing federal tax rates without coordinated reductions in federal spending actually produces long-term growth in spending. This perverse result is explained by a theory of "fiscal illusion.'' By deferring the costs of government services and benefits through deficit financing, starve the beast policies have the effect of lowering the perceived price of government in the minds of many citizens. We assess the principal behavioral prediction of the fiscal illusion strategy. Incorporating estimates of the effects of federal deficits into a standard substantive model of Stimson's mood index, we find strong support for a subjective price-driven theory of demand for government. In particular, we find that the size of the federal budget deficit is significantly associated with greater demand for government services and benefits.

This study analyses whether expected budget deficits have an impact on interest rate swap spreads in France, Germany and Italy. We use monthly deficit forecasts from financial market participants to take the forward-looking behaviour of financial markets into account. Results of a SUR estimation show no significant impact of expected deficits on swap spreads over the whole sample period (1994-2004). However, we find an increase in market discipline for Germany and France since the signing of the Stability and Growth Pact, and for Germany also since the start of European monetary union.

This study tests the existence of political business cycles and effects of various instituitonal factors on budget deficits in Turkey. For this purpose, the annual (for 1960-1996), quarterly (for 1983:QI-1997:Q2) and the monthly data (for 1990:01-1997:6) are used. Results with annual data show that as the number of parties in a coalition government and the number of fiscal authorities increase, the budget deficits also increase while elections do not significantly affect the budget deficits. However, the coalitions, the military coups, petroleum shocks, the Cyprus war and terrorism have significant and negative effects on budget deficits. Quarterly data shows that elections, number of parties in a coalition government and the number of fiscal authorities have some effects on sub items of the budget though they do not affect the budget deficit significantly. On the other hand, monthly data show that especially elections have significant and negative effects on the budget deficit and on all of the sub items of the budget except the investments. However, monthly data do not indicate any significance for the effects of number of fiscal authorities and number of parties in the coalition governments. The analysis with monthly data of budget subtotals clearly indicate the existence of political business cycles for the period 1990-1996. Therefore, while the analyses with the annual data disguise the effects of elections, the analyses with quarterly and monthly data reveal the existence of political business cycles. Moreover, quarterly data indicate that the political power dispersion increases the transfer expenditures. We stress some policy implications of these analyses. The emphasis is on the unification of fiscal authorities, and reducing off-budget expenditures.

This paper investigates the relationship between budget deficits and inflation with the view that the nature of this relationship depends on the characteristics of monetary and financial institutions. The main hypothesis of the paper is that budget deficits are especially inflationary when both the central bank is not independent and the financial market is not developed enough to contain inflationary expectations. Our empirical analysis that use a panel data, comprising fifty four developed and less developed countries with one to two decades of observations for each, supports this hypothesis. The findings are also robust to samples that exclude high inflation rates.

textabstractUncertainty about the future preferences of the government may induce policy makers to run excessive budget deficits. As a solution to this problem, economists have proposed to impose a binding debt rule. In this paper we argue that a binding debt rule does not eliminate the distortions due to strategic behaviour of politicians. Rather, strategic manipulation shifts from public debt to public investment. As an alternative, we examine the effects of a capital borrowing rule which permits the government to run a budget deficit equal to the amount of public investment. We show that this rule effectively eliminates strategic behaviour.

Deficits and debts are very complex issues for eternal public debate. The norm of budget balance - whether as a value judgment or ideal, as a political symbol or as a budgetary principle - often appears in literature and public debate over federal budgetary and fiscal policies. This paper offers a preliminary examination of this norm. The purpose is to provide a perspective on how federal budgeting has evolved, where it is going and how deficit and debt issues are to be tackled in a theoretically reasonable and practically acceptable way. The paper traces the genesis of the norm, dissects the different elements of the norm for their inner logic, and divides the elements into an annual component and a cyclical component. Using historical data, the paper finds that the norm of budget balance had its heyday from the 19th century till roughly 1960; the tax-smoothing theory well explains its operation. Since then, budget balance has been ignored, for which no theory offers adequate explanation. This paper finds that new functions of the federal government opened a window for entitlements while electoral politics developed downward pressure on taxation, which is the logic behind chronic deficits and increasing debts. The paper also finds that decline of the norm has left a vacuum in budgeting research; current literature identifies difficulties in federal budgeting but is shy of specific answers. This paper proposes the concept of "balanced budgeting" as a new paradigm for further discussion and as a potentially rich area for future research.

The paper reviews the principles and practical considerations involved in the choice between foreign and domestic financing of fiscal deficits, and derives a series of recommendations broadly applicable to Central and West African countries. The paper develops a simple analytical framework and shows that highly concessional external debt is usually a superior choice to domestic debt in terms of financial costs and risks, even in the face of a probable devaluation. The paper stresses the importance of the availability and terms of financing, and of overall long-term debt sustainability. It concludes that these countries need to take a gradual approach to domestic debt financing, beginning with the issuance of short-term bills, and ensure a solid track record of meeting their debt-service obligations.

It has almost become the conventional wisdom that there should be rules governing the size of the budget deficits, without regard for the impact of such deficits on the macro economy. This is reflected in the push for a balanced budget in the United States and the 3 percent deficit to GDP ratio convergence criteria in the Maastricht Treaty (and designed for observance by countries signing up for the single currency). The purpose of this paper is not to present further arguments against deficit reduction for its own sake or against the balanced budget for that has been done by others. The purpose is rather to consider the arguments which have been done by others. The purpose is rather to consider the arguments which have been advanced in favor of a budget deficit limited by the capital expenditure budget separate from the current expenditure. The structure of this paper is as follows. We first consider some possible rationales for the so-called ‘golden rule' that current expenditure by government should be covered by taxation and capital expenditure may be financed by borrowing. The next section points out the ways in which the government sector should be treated differently from the private sector in matters of deficits and their financing. The application of any ‘golden rule' is dependent on how capital expenditure is conceptualized and measured, and that is discussed in section 4. The next section suggests ways in which the ‘golden rule' may lead to some problems. Section 6 provides some further discussion on the debt stability condition, and section 7 is a brief conclusion. The central point which is at the heart of this paper is the current expenditure and capital expenditure by government have the essentially similarities that they use current resources, have to be financed but do not yield a direct monetary revenue for the government.