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The Peace Dividend
Type: Book
ISBN: 978-0-44482-482-0

Article
Publication date: 29 April 2021

Naser Yenus Nuru and Mola Gebremeskel Zeratsion

The main aim of this study is to examine the effect of government spending and its components' shocks on the distribution of income between labour and capital in South…

Abstract

Purpose

The main aim of this study is to examine the effect of government spending and its components' shocks on the distribution of income between labour and capital in South Africa for the period between 1994Q2 and 2019Q3.

Design/methodology/approach

The effects of government spending shocks on income distribution are analysed using Jordà's (2005) local projection method. The shocks, however, are identified by applying short-run contemporaneous restrictions in a vector autoregressive model based on Cholesky identification scheme.

Findings

The results indicate that government spending shock has a positive and significant effect on labour share after the first quarter. This means that expansionary government spending has a paramount role in reducing income inequality in the economy. Both government investment and government consumption shocks have also contributed to a reduction in income inequality, though the magnitude effect is smaller for government consumption.

Originality/value

Research findings on the effects of government spending shock on income inequality are still inconclusive. Therefore, this research examines the effect of total government spending shock along with its components on labour income share for the South African economy.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 1 April 2021

Hiluf Techane Gidey and Naser Yenus Nuru

Government spending has inconclusive effect on real exchange rate. From the very beginning neoclassical economists argued that a rise in government spending brings…

Abstract

Purpose

Government spending has inconclusive effect on real exchange rate. From the very beginning neoclassical economists argued that a rise in government spending brings depreciation in real exchange rate while neo-Keynesians claimed that government spending appreciates real exchange rate. Hence, the main purpose of this paper is to examine the effect of government spending shock and its components' shocks, namely government consumption and government investment on real exchange rate over the period 2001Q1–2016Q1 for Ethiopia.

Design/methodology/approach

To examine the effects of government spending shocks on real exchange rate, Jordà's (2005) local projection method is employed in this study. The exogenous shocks, however, are identified recursively in a vector autoregressive model.

Findings

The impulse responses show that government spending shock leads to a statistically significant appreciation of real exchange rate in Ethiopia. This evidence supports the neo-Keynesian school of thought who predicts an appreciation of real exchange rate from a rise in government spending. While government investment shock depreciates real exchange rate on impact insignificantly, government consumption shock appreciates real exchange rate in this small open economy.

Originality/value

This research contributes to the scarce literature on the effect of fiscal policy shock on real exchange rate in small open economies like Ethiopia.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 2 December 2019

Hayelom Yrgaw Gereziher and Naser Yenus Nuru

The purpose of this paper is to estimate the size of government spending components’ multipliers for the Ethiopian economy over the sample period of 2001Q1 up to 2017Q4.

Abstract

Purpose

The purpose of this paper is to estimate the size of government spending components’ multipliers for the Ethiopian economy over the sample period of 2001Q1 up to 2017Q4.

Design/methodology/approach

The effects of government spending are analyzed by applying short-run contemporaneous restrictions for the identification of shocks in an SVAR in order to estimate multipliers for the small open economy. Accordingly, recursive identification scheme is used in this study.

Findings

From the impulse response functions, the authors found that aggregate government spending is less effective in stimulating the economy for the study period as evidenced by almost zero multipliers. This can be due to many structural and conjunctural factors that tend to lower the multiplier effects. At a disaggregate level, real GDP responds negatively to capital spending while its effect on recurrent spending is positive and insignificant on impact. The variation to real GDP is best explained by the variation in capital spending as compared to recurrent spending.

Originality/value

Though almost none in number, little research has been conducted in Ethiopia related to the effect of government spending shock on output. But this research deviates from the previous study by introducing a new methodology which is SVAR with cholesky decomposition. The previous study, however, used Bayesian VAR. Besides to that, using cholesky identification scheme, government spending is decomposed in to recurrent and capital spending to see the effect of government spending components on output and government spending multipliers are also computed both at an aggregate and disaggregate level.

Details

African Journal of Economic and Management Studies, vol. 11 no. 1
Type: Research Article
ISSN: 2040-0705

Keywords

Article
Publication date: 4 October 2019

Naser Yenus Nuru

The purpose of this paper is to show the asymmetric effects of government spending shocks for South Africa over the period 1960Q1–2014Q2.

Abstract

Purpose

The purpose of this paper is to show the asymmetric effects of government spending shocks for South Africa over the period 1960Q1–2014Q2.

Design/methodology/approach

A threshold vector autoregressive model that allows parameters to switch according to whether a threshold variable crosses an estimated threshold is employed to address the objective of this paper. The threshold value is determined endogenously using Hansen (1996) test. Generalized impulse responses introduced by Koop et al. (1996) are used to study the effects of government spending shocks on growth depending on their size, sign and timing with respect to the economic cycle. The author also uses a Cholesky decomposition identification scheme in order to identify discretionary government spending shocks in the non-linear model.

Findings

The empirical findings support the state-dependent effects of fiscal policy. In particular, the effects of 1 or 2 standard deviations expansionary or contractionary government spending shock on output are very small both on impact and in the long run; and a bit larger in downturns but has only a very limited effect or no effect in times of expansion. This result gives support to the evidence in the recent literature that fiscal policy in developing countries is overwhelmingly procyclical.

Originality/value

It adds to the scarce empirical fiscal literature of the South African economy in particular and developing economies in general by allowing non-linearities to estimate the effect of government spending shocks over economic cycle.

Details

African Journal of Economic and Management Studies, vol. 11 no. 1
Type: Research Article
ISSN: 2040-0705

Keywords

Article
Publication date: 11 May 2015

Periklis Gogas and Ioannis Pragidis

The purpose of this paper is to test the effects of unanticipated fiscal policy shocks on the growth rate and the cyclical component of real private output and reveal…

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Abstract

Purpose

The purpose of this paper is to test the effects of unanticipated fiscal policy shocks on the growth rate and the cyclical component of real private output and reveal different types of asymmetries in fiscal policy implementation.

Design/methodology/approach

The authors use two alternative vector autoregressive systems in order to construct the fiscal policy shocks: one with the simple sum monetary aggregate MZM and one with the alternative CFS Divisia MZM aggregate. From each one of these systems we extracted four types of shocks: a negative and a positive government spending shock and a negative and a positive government revenue shock. These eight different types of unanticipated fiscal shocks were used next to empirically examine their effects on the growth rate and cyclical component of real private GNP in two sets of regressions: one that assumes only contemporaneous effects of the shocks on output and one that is augmented with four lags of each fiscal shock.

Findings

The authors come up with three key findings: first, all fiscal multipliers are below unity but with signs as predicted by Keynesian theory. Second, government expenditures have a larger impact as compared to the tax policy and finally, positive government spending shocks are more significant than negative spending shocks. All these results are in line with previous studies and are robust through many tests using structural identification proposed by Blanchard and Perotti (2002).

Practical implications

The empirical findings in this manuscript can be used for conducting a more efficient fiscal policy. The importance of government spending shocks is empirically verified along with the asymmetries related to price stickiness predicted by Keynesian theory. According to the results an efficient fiscal policy would: in terms of an expansionary policy, use government spending as a means to stimulate the economy instead of tax cuts and in the case of a contractionary policy use government revenue (higher taxes) so that the costs of this policy in terms of output lost are lower.

Originality/value

In this study the authors introduce three main innovations: first, to the best of our knowledge the Divisia monetary aggregates have not yet been used to previous research pertaining to fiscal policy. Second, following Cover’s (1992) procedure of identifying monetary policy shocks we extract the unanticipated fiscal policy shocks on government spending and revenue. Finally, the authors explicitly test for the asymmetric effects on the growth rate and the cyclical component of real private GNP of a contractionary and expansionary fiscal policy.

Details

Journal of Economic Studies, vol. 42 no. 2
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 17 December 2018

Thanapan Laiprakobsup

The purpose of this paper is to examine how political regimes and political transition affect government decisions to allocate budgets to the public health sector in…

Abstract

Purpose

The purpose of this paper is to examine how political regimes and political transition affect government decisions to allocate budgets to the public health sector in Southeast Asia.

Design/methodology/approach

Ordinary least squares with fixed-effects model is adopted to examine the effect of political regime on public health spending.

Findings

Examining the allocation of public health budgets in Southeast Asian countries, the paper finds that a democratic government positively leads to an increase in public health budget allocation, while autocratic government negatively affects the allocation of public health budgets. Further, political liberalization contributes to an increase in budget allocation to the public health sector.

Originality/value

Democratic politics and economic development aim to distribute public resources to social policy, such as policy on public health.

Details

International Journal of Development Issues, vol. 18 no. 1
Type: Research Article
ISSN: 1446-8956

Keywords

Article
Publication date: 1 March 1994

Andrew M. McLaughlin and Jeremy. J. Richardson

Budgetary reform in the UK since the International Monetary Fund (IMF) intervention under a Labour government in 1976 has been prompted by a new conventional wisdom that…

Abstract

Budgetary reform in the UK since the International Monetary Fund (IMF) intervention under a Labour government in 1976 has been prompted by a new conventional wisdom that public expenditure was too high, and consequently, "crowded out" private sector investment. Although this belief became widespread in western democracies, in Britain it developed relatively early and was closely linked to the wider debate about Britain's relative economic decline. The first section of this article reviews the main reforms of the budgetary process which these concerns prompted.

In the second section we note that, despite the political concern with reducing public expenditure in the 1980s, success has been limited and priority is now the improvement of the underlying control and evaluation mechanisms in government spending. In practice, the main policy activity of the Thatcher administrations was on gaining "value for money" from existing expenditure. These developments are discussed and the likelihood of success considered. The nature of the present annual budgetary cycle is described as are the most recent developments designed to finally gain some form of effective expenditure control.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 6 no. 1
Type: Research Article
ISSN: 1096-3367

Article
Publication date: 1 November 2006

Magda Kandil

Using quarterly data for a sample of 17 industrial countries, the purpose of this paper is to study asymmetry in the face of monetary shocks compared to government spending shocks.

3875

Abstract

Purpose

Using quarterly data for a sample of 17 industrial countries, the purpose of this paper is to study asymmetry in the face of monetary shocks compared to government spending shocks.

Design/methodology/approach

The paper outlines demand and supply channels determining the asymmetric effects of monetary and fiscal policies. The time‐series model is presented and an analysis of the difference in the asymmetric effects of monetary and fiscal shocks within countries is presented. There then follows an investigation of the relevance of demand and supply conditions to the asymmetric effects of monetary and fiscal shocks. The implications of asymmetry are contrasted across countries.

Findings

Fluctuations in real output growth, price inflation, wage inflation, and real wage growth vary with respect to anticipated and unanticipated shifts to the money supply, government spending, and the energy price. The asymmetric flexibility of prices appears a major factor in differentiating the expansionary and contractionary effects of fiscal and monetary shocks. Higher price inflation, relative to deflation, exacerbates output contraction, relative to expansion, in the face of monetary shocks. In contrast, larger price deflation, relative to inflation, moderates output contraction, relative to expansion in the face of government spending shocks. The growth of output and the real wage decreases, on average, in the face of monetary variability in many countries. Moreover, the growth of real output and the real wage increases, on average, in the face of government spending variability in many countries. Asymmetry differentiates the effects of monetary and government spending shocks within and across countries. The degree and direction of asymmetry provide a new dimension to differentiate between monetary and fiscal tools in the design of stabilization policies.

Originality/value

The paper's evidence sheds light on the validity of theoretical models explaining asymmetry in the effects of demand‐side stabilization policies. Moreover, the evidence should alert policy makers to the need to relax structural and institutional constraints to maximize the benefits of stabilization policies and minimize the adverse effects on economic variables.

Details

Journal of Economic Studies, vol. 33 no. 6
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 12 February 2018

Gitana Dudzevičiūtė, Agnė Šimelytė and Aušra Liučvaitienė

The purpose of this paper is to provide more reliable estimates of the relationship between government spending and economic growth in the European Union (EU) during the…

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Abstract

Purpose

The purpose of this paper is to provide more reliable estimates of the relationship between government spending and economic growth in the European Union (EU) during the period of 1995-2015.

Design/methodology/approach

The methodology consisted of several different stages. In the first stage for an assessment of dynamics of government spending and economic growth indicators over two decades, descriptive statistics analysis was employed. Correlation analysis helped to identify the relationships between government expenditures (GEs) and economic growth. In the third stage, for modeling the relationship and the estimation of causality between GE and economic growth, Granger causality testing was applied.

Findings

The research indicated that eight EU countries have a significant relationship between government spending and economic growth.

Research limitations/implications

This study has been bounded by general GE and economic growth only. The breakdowns of general GE on the basis of the activities they support have not been considered in this paper, which is the main limitation of the research. Despite the limitation, it might be maintained that the research highlights key relationships in the EU countries.

Originality/value

These insights might be useful for policy makers. In countries with unidirectional causality running from GE to economic growth, the government can employ expenditure as a factor for growth. The governments should ensure that resources are properly managed and efficiently allocated to accelerate economic growth in the countries with unidirectional causality from GDP to GE.

Details

International Journal of Social Economics, vol. 45 no. 2
Type: Research Article
ISSN: 0306-8293

Keywords

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