Non-Linear Effects of Fiscal Policy on Economic Growth: Moroccan Case

Abdenour, Redouan and Tounsi, Said (2015): Non-Linear Effects of Fiscal Policy on Economic Growth: Moroccan Case.

Abstract

In the economic theory, many arguments were advanced to justify the efficiency of the fiscal policy with a view to stabilization. For some, expansionist fiscal policies can have favorable effects on the economic growth, while for others, the economy is always in a global balanced situation, and thus the fiscal policy will have no effect and can be even harmful for the economy. However, these two effects can coexist in the economy, therefore putting forward the nonlinear character of fiscal policy in the economy growth. This study has the objective of appreciating the nature of the relation between fiscal policy and the economic growth in a 36 developing country sample of, taking into account the existence of possible nonlinear effects of the fiscal policy. Due to the use of the methodology of endogenous thresholds, the iterative procedure for the determination of endogenous thresholds developed by Hansen (1996, 1999, 2000) has allowed us to identify an optimal budget deficit threshold of 5,1%, which makes the relation between budget deficit and growth become non-linear. In other words, below this threshold expansionist policies have favorable effects on the economic growth, while above these policies it becomes non-favorable.

• Item Type: MPRA Paper
• Language: English
• Keywords: economic growth, Keynesian regime, Threshold effects, Fiscal policy.
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H6 - National Budget, Deficit, and Debt

References

Ary Tanimoune, Plane and Combes (2005) : « Les effets non linéaires de la politique budgétaire : le cas de l’Union Economique et Monétaire Ouest Africaine » Communication aux journées de l’AFSE, Clermont-Ferrand, 19 et 20 mai 2005.

Alesina A. and Ardagnas S. (1988), « Tales of Fiscal Adjustment », Economic Policy, 27, p. 487-545.

Adam C. S. and Bevan D. L. (2005), « Non-linear Effects of Budget deficits on Growth in Developing Countries », Journal of Public Economics, P. 571– 597.

Barro Robert J. (1974): « Are Government Bonds Net Wealth », Journal of Political Economy, Vol. 82, nov-dec, pp. 1095-1117.

Barro Robert J. (1989), « The Ricardian approach to budget deficits », Journal of Economic Perspectives, vol.3.

Ben Salem M. and Perraudin C. (2001) : « Tests de linéarité, spécification et estimation de modèles à seuil : une analyse comparée des méthodes de Tsay et de Hansen », Économie et Prévision 2001/2, n° 148, p. 157-176.

Bertola G. and A. Drazen, (1993): « Trigger points and budgets cuts: explaining the effects of fiscal austerity », American Economic Review, 83, 1, 11-26.

Blanchard and al. (1990): « La soutenabilité de la politique budgétaire : Nouvelles réponses a une question ancienne » Revue économique de l'OCDE, no 15.

Colletaz, G. and Hurlin C. (2006): « Threshold Effects of the Public Capital Productivity: an International Panel Smooth Transition Approach », Université d'Orléans, LEO wp. No. 1/2006.

Creel J. and al (1992) : «Doit - on oublier la politique budgétaire? Une analyse critique de la nouvelle théorie anti-keynésienne des finances publiques » Revue de l’OFCE 92.

Drukker D., Gomis – Porqueras Hernandez-Ernandez-Verme P. (2005), « Threshold Effects in the Relationship between Inflation and Growth: A New Panel-Data Approach», Paper Presented in the 11th International Conference on Panel Data, February 2005, 18P.

Giudice G. et al (2003): « Can fiscal consolidations be expansionary in the EU? Ex-post evidence and exante analysis », European Commission, Economic Papers, n° 195, décembre.

González, A., Teräsvirta T., and van Dijk D., (2005) :« Panel Smooth Transition Regression Models »,WP Series in Economics and Finance 604, Stockholm School of Economics.

Gourieroux C. and Monfort A. (1995) : Séries Temporelles et Modèles Dynamiques. Economica, 3ème édition. Hamilton, J.D (1994), Time Series Analysis, Princeton University Press.

Hakkio C.S., Rush M. (1991): « Is the Deficit Too Large », Economic Inquiry, 29, P.429-445. Hamilton, James D and Marjorie A. Flavin (1986): « On the limitations of government Borrowing: A framework for empirical Testing ». American economic review 76 p. 808-19.

Hansen B.E (1996): « Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis » Econometrica 64, 413-430.

Hansen B.E., (1999): « Threshold Effects in non-dynamic panels: Estimation, testing, and inference », Journal of Econometrics, 93, 345-368.

Hansen B. E (2000): « Sample Splitting and Threshold Estimation », Economica, Vol. 68, No. 3, 575-603.

Hjelm G. (2002): « Is Private consumption growth higher (lower) during periods of fiscal contractions (expansions)? », Journal of Macroeconomics, Vol. 24, pp. 17-39.

Hénin P.Y. (1997): « Soutenabilité des déficits et ajustements budgétaires », Revue Economique 48 (3), mai, pp.371-395.

Kacou K., (2005): « Effets de la politique fiscale de l’Etat sur l’épargne en Côte d’ivoire ». CAPEC, Lettre de politique économique, N°98, Juillet 2005.

Kennedy S. and Robins J. (2001): «The Role of Fiscal Discipline in Determining Fiscal Performance», Department of Finance Working Paper, 2001-16, Canada.

Kremers J.J.M. (1988): « Long Run Limits on the US Federal Debt », Economics Letters, 28 (3), pp. 259-262.

Lau P., (1999) : «Les contractions budgétaires en Europe. Les enseignements des ajustements danois, irlandais et suédois », Revue Française de Finances Publiques, 68, 17-31.

Ondo Ossa (2005) : « Effets anti-keynésiens et ajustements(le cas de la zone CEMAC) » Revue du L.E.A, , vol. 6, numéro spécial, janv-juin, 3-26.

Rogoff Kenneth (1990): « Equilibrium Political Budget Cycles », American Economic Review, Vol. 80(1), pp.21-36.

Rzonca A. et Cizkowicz P. (2005), « Non-keynesian Effects of Fiscal contraction in New Members States », European Central Bank Working Paper, No. 519, September.

Solow, R., (2002) : « Peut-on recourir à la politique budgétaire? Est-ce souhaitable? », Revue de l’OFCE, n° 83, octobre, pp. 7-24.

Sutherland A., (1997): « Fiscal crises and aggregate demand: Can high public debt reverse the effects of fiscal policy? », Journal of Public Economics, 65, 147-162.

Tong H., (1990): «Nonlinear Time Series: A Dynamical System Approach» Oxford University Press.

Tong H. et Lim K.S. (1980): « Threshold Autoregression, Limit Cycles and Data », Journal of the Royal Statistical Society, Serie B, vol. 42, pp. 245-292.

Tsay R.S., (1989): « Testing and modeling threshold autoregressive processes », Journal of the American Statistical Association, 84, 231-240.

Mankiw, G. N. (2001) : Macroéconomie, De Boeck University, Paris.

Minea A., Villieu P., (2007) : « Investissement public et effets non linéaires des déficits budgétaires ». LEO, Université d’Orléans.

Khan M., Senhadji A. (2001), «Threshold Effects in the Relationship between Inflation and Growth», IMF Staff Papers, 48: 1 pp.1-21.

Guidice G., Turrini A.(2003), « Can fiscal consolidations be expansionary in the EU ? Ex-post evidence et ex-ante analysis », European Economic Papers, n° 195.