Search results

This paper aims to uncover the nexus between budget deficits, money growth and inflation in Vietnam in the period 1995–2012.

The paper uses a structural vector auto-regressive model of five endogenous variables including inflation, real GDP growth, budget deficit growth, money growth and the interest rate.

It is found that inflation rose in response to positive shocks to money growth and that budget deficits had no significant impact on money growth and therefore inflation. This empirical evidence supports the hypothesis that fiscal and monetary policies were relatively independent. Money growth significantly decreased in response to a positive shock to inflation; interest rates had no significant effect on inflation but considerably increased in response to positive inflation shocks. This implies that the monetary base was more effective than interest rates in fighting inflation.

This paper sheds light into understanding the link between budget deficits, money growth and inflation in Vietnam during the high-inflation period 1995–2012. The finding supports the hypothesis that fiscal and monetary policies were relatively independent over the period.

This study aims to examine the impact of fiscal deficit, exchange rate and trade openness on current account deficit (CAD). The study tried to empirically investigate the ‘twin deficits hypothesis’ and ‘compensation hypothesis’ in the Indian context.

Autoregressive distributed lagARDL) bound test approach was used by taking annual time series data from 1978 to 2021. The estimates confirm a significant long-run and short-run relationship between dependent variables, i.e. CAD and independent variables such as the fiscal deficit, exchange rate and trade openness.

The results show that positive shocks of all explanatory variables significantly affect the CAD. CAD and fiscal deficit are significantly associated, as the coefficient of fiscal deficit is positive and significant. The study also found that exchange rate and trade openness significantly affect the CAD. The coefficients of exchange rate and trade openness are positive and significant. The findings show that an increase in CADs results from liberal trade policies that help domestic industries grow their trade and expansionary fiscal policy, leading to a higher fiscal deficit. The negative and significant error correction term suggests that short-run disequilibrium converges to long-run equilibrium at a speed of 19.2%. The findings validate the ‘twin deficits hypothesis’ and ‘compensation hypothesis’ in the Indian context.

It can be inferred from the study that liberal policy to promote economic growth and trade openness should be designed and promoted judiciously. An excessive liberalised approach may impact other macroeconomic variables such as current account balances. Integrating the domestic market with global markets poses a big challenge for countries like India that aspire to penetrate global markets. Furthermore, the Indian policy makers should rigorously work and promote the policies such as Fiscal Responsibility and Budget Management (FRBM) as reduction in fiscal deficits, trade imbalances will also be reduced.

This study contributes to the existing literature on ‘twin deficit’ and trade openness by giving new evidence on the trilemma between designing sustainable fiscal policy by spending wisely without imperilling the country's global presence and CAD.

This paper identified the ṣukūk structure suitable for deficit financing during the COVID-19 crisis. The study also explored the relevant Sharīʿah contracts that could be utilized to issue ṣukūk that is suitable for various jurisdictions and corporations in handling deficit financing during the COVID-19 crisis.

The authors have adopted a qualitative research approach in which primary and secondary sources available on the subject were reviewed, especially a number of cases related to ṣukūk structures prior to and during the COVID-19 crisis and analyzed their performances and drawn their conclusions.

The outcome of this paper suggests that certain ṣukūk structures used during the COVID-19 crisis aimed primarily at financing deficit have been successful. Furthermore, these ṣukūk structures are relied very much on the obligator’s/issuer’s cash flow position. It has been revealed that if the ṣukūk is structured on equity-based contracts with lower repayment amount or no payment, it would not trigger default because the nature of this ṣukūk is the sharing of profit and loss, in accordance with a Sharīʿah rule that there will be compensation for any loss only if deliberate and notable negligence is proven. However, if it is debt based or ijarah and wakalah contracts, then the payment to ṣukūk holders ought to be made as agreed and if not, it will trigger default. This payment is to be made from the cash flow of the issuer and if there is an issue in the cash flow of the issuer due to COVID-19, consent from the ṣukūk holders needs to be obtained to reschedule payment as found in the case of the Garuda Indonesia ṣukūk. However, as found in MASB’s IMTN ṣukūk case, if the cash flow of the company is good, then the chances of default are very slim. However, so far, three new ṣukūk in the middle of COVID-19 were issued, one by a corporation and two issued by a sovereign, one of which addresses the liquidity issues during the pandemic, and all these proved that ṣukūk is definitely a viable alternative mode for deficit financing and a reliable option during the COVID-19 pandemic.

This paper looked into the ṣukūk structure, especially the ṣukūk which are yet to mature and the new ṣukūk issued during the crisis caused by the COVID-19 pandemic.

It is anticipated that the outcome of this research will assist the stakeholders in ṣukūk markets to understand the ṣukūk impact on COVID-19 related deficit financing and suggest various structures that could be utilized in the ṣukūk market in an unprecedented situation such as the COVID-19 economic distress.

Looking at the social aspect of ṣukūk markets, this paper has endeavored to provide solutions to the financing of deficit for social well-being as a tool to provide relief and social stability in the lives of the people.

The novel COVID-19 pandemic has caused unprecedented economic difficulties and market distress on a global scale; and this research sought to identify the relevant ṣukūk structures to be used for deficit financing during the pandemic crisis, especially the ṣukūk which are yet to mature and new ṣukūk issued during the pandemic crisis. The former includes HDFC Muḍārabah ṣukūk (2019) Maldives and MAHB ṣukūk/IMTN program (2010) Malaysia, while the latter includes IsDB Trust Certificates, Phase 2 of the tranches (2020), the Federal Government of Nigeria Road ṣukūk (May, 2020) and Sharj’ah Government two billion Dirham ṣukūk (June, 2020).

The purpose of this paper is to investigate the problem of fiscal sustainability for a panel of developing Asian economies.

In this study, cross-section dependence and heterogeneity are controlled while estimating the fiscal reaction function, which shows how governments react to the accumulation of public debt. The study employs the common correlated effects mean group estimator in Pesaran (2006) for a panel of 22 developing Asian economies for the period 1999‒2017.

It is found that the fiscal sustainability issue in the region is not so benign as in previous studies. Overall, fiscal policy is unsustainable, even for the nonlinear fiscal rule. Country-specific long-run coefficients are also examined in the study.

The findings show that many developing economies in the region could not satisfy the intertemporal budget constraint, which raises concerns about debt sustainability in the area, especially for the post-crisis period.

This study investigates whether governments can maintain the sustainability of public finances in the long-run, if the ratios of public debt over GDP and primary deficit over GDP continue their recent problematic trends. Another novelty is controlling for heterogeneous effects among the countries in the region to give a more precise picture of debt sustainability. The empirical evidence also supports that insolvency risk can occur at low levels of public debt.

The objective of this study is to analyze the role that budgetary analytical capacity (BAC) plays for fiscal discipline in a sample of Eurozone countries in the postcrisis period.

Building on the policy capacity literature, an index for the BAC is constructed by including OECD budgetary data from three dimensions: reliability of projections, openness to legislative scrutiny and transparency. The proposed BAC index is validated by checking that larger values of the index are associated with the higher fiscal discipline scores across countries.

Controlling for the economic cycle, BAC index is positively associated with fiscal discipline. The association is stronger for the index as a whole than for the three separate dimensions.

The study is done on the limited sample of countries, and it is not feasible to validate results over time.

Budgetary policymakers can improve fiscal discipline by enhancing the three pillars that support the BAC.

Stronger BAC can help to improve the quality of public decision-making and overcome political opportunism.

This is the first study that introduces the concept of BAC, makes it operational and suggests its relevance for supporting fiscal discipline.

The purpose of this paper is to examine the impacts of fiscal policy, namely, net tax and government expenditure on national saving and its nonlinearity. The author first investigates whether the impacts of fiscal policy on national saving have changed after the global financial crisis of 2008. Then, the author tests the nonlinearity of the relationship by taking account of the economic cycle, namely, economic expansion (boom) and economic recession (bust).

The empirical model bases on a reduced-form equation with national saving as a dependent variable, lagged value of national saving, output gap and fiscal policy as independent variables. The two-step system GMM approach was employed to estimate the empirical model, using a panel of 23 emerging Asian economies in the period of 1990-2015.

The empirical results show that tax policy and expenditure policy follow the predictions of the overlapping generation model with finite horizon and the Keynesian view. The nonlinearity of fiscal policy is twofold. The conduct of fiscal policy in the period after 2008 seems effective, while the effect is insignificant in the period before 2008. Likewise, fiscal policy tends to have more significant effects in bust cycle. The effect of tax policy is increased during recession, while the effect of government spending is more pronounced during economic downturn.

The contributions of this paper are twofold. First, it is shown that fiscal policies in the region had more impacts on national saving after the global financial crisis of 2008. Second, the research confirms nonlinear impact of fiscal policy on saving behavior during economic recession and economic boom.

Considering the continuous rise in the public debt stock of developing countries (particularly Ghana) with the unstable economic growth rate for the past decades and the recent borrowing because of the impact of COVID 19, this paper aims to examine the causal relationships between public debt and economic growth over time.

The paper uses a dynamic multivariate autoregressive-distributed lag (ARDL)-based Granger-causality model to test the causal relationships between public debt and economic growth [gross domestic product (GDP)]. Annual time-series data that spanned 1978–2018 were sourced from the World Bank Development Indicator database and the IMF fiscal Affairs Department Database and WEO.

The results reveal that public debt has no causal relationship with GDP in the short-run but there is unidirectional Granger causality running from public debt to GDP in the long run. Again, investment spending has a negative bi-directional causal relationship with GDP in the short-run but they have a positive bi-directional causal relationship in the long run. Conversely, no short-run causal relationship exists between government consumption expenditure and GDP but long-run Granger causality runs from government consumption expenditure to GDP. Finally, public debt has a positive impact on the inflation rate in the short run.

The findings imply that government(s) must ensure high fiscal discipline to serve as a precursor for the effective and efficient use of recent borrowing, that is, the loans should be used for highly prioritized projects (preferably investment spending) that are well evaluated and self-sustained to add positively to the GDP.

This paper provides contemporary findings to augment extant literature on public debt and economic growth by using variables and empirical models, which prior studies could not sufficiently cover in a developing country perspective and affirms that public debt contributes to GDP only in the long run.

Actions of incumbent politicians and firms’ managers during election years have been cited as sources of many problems that afflict economies and business entities. Given the controversies surrounding the impact of elections on firms’ soundness, this paper poses a question of whether banks should be averse to elections. Specifically, this study aims to investigate the impact of elections on the profitability and efficiency of banks.

Based on the authors’ knowledge, this is maiden analysis in this context for Ghana where relatively advanced appropriate GMM technique has been used on annual data from 2012 to 2016.

This study reveals that banks make higher returns in election years. Additionally, the authors report that government’s economic policies in election years are detrimental to management efficiency, though insignificant.

From an emerging economy perspective, this study would guide policymakers in designing policies that respond to, or minimize, the impact of elections on bank performance. The result of this analysis would also substantiate the market reaction to the changes in the economic, political and financial conditions.

This analysis suggests that firms’ performances in an election year depend on policies and political institutions in place. The authors argue that Ghana, with its exemplary democratic credentials and strong institutions, living alongside a high perception of corruption, is different. The contribution to literature is, first, by limiting this work to the banking sector of Ghana and, second, by incorporating the behaviors of incumbent governments and individuals in the regression specification model.

The purpose of this study is to investigate the relationship between fiscal policy (tax revenues and government expenditure) and economic happiness. The panel data are used from 2012 to 2016 for 18 countries of the Middle East and North Africa (MENA) region.

The study adopted the Barro (1990) model of endogeneity growth to characterize the relationship between fiscal policy and economic happiness. The study estimated the model by using the pooled ordinary least squares method, the fixed effects method and the random-effects method. In addition, the study used the dynamic estimate of this relationship rather than the conventional static estimate through the generalized method of moments’ method. This leads to overcoming the endogeneity problem between the dependent variable and the independent variables.

The main findings indicated that there is a negative and statistically significant relationship between nondistortionary taxes and economic happiness. Also, there is no relationship between public expenditure and economic happiness, whether productive or nonproductive. The results confirmed a positive and significant relationship between other revenues and economic happiness. The current study recommended the diversification of other public revenue sources to increase its contribution to public expenditure financing and the restructuring of the tax system, particularly nondistortionary taxes. These taxes must be replaced by other revenues or by distortionary taxes to increase economic happiness.

The research represents a strong starting base that can help researchers to conduct more studies on economic happiness by using different measures and comparing their results to find out the determinants of happiness. The relationship between economic happiness and fiscal policy with its different aspects requires more studies, especially the relationship between taxes and economic happiness in our region. The study of the relationship between public expenditure and economic happiness according to economic activities can guide decision-makers to direct the expenditure toward economic activities that achieve the happiness of their citizens. Enriching this study requires the availability of fiscal data for the entire MENA region for longer periods, which allow us to divide the countries of the region into petroleum and nonpetroleum countries, but the scarcity of data is one of the limitations of the study.

The governments of MENA countries should diversify other public revenue sources to increase the financing public expenditure by the expense of tax revenues, especially nondistortionary taxes, which would increase the economic happiness of their citizens.

This study is one of the rare studies that investigate the relationship between fiscal policy and economic happiness at the global level. This study contributed to filling the gap of this issue in the MENA region and enriching global literature through the experience of the MENA region. Moreover, this study investigated all aspects of fiscal policy, in contrast to other studies that focused on one of its aspects. The weakness in these studies is because of the lack of correlation between the sources of revenues and the face of their spending.