Revisiting the Growth Effects of Fiscal Policy: A Bayesian Model Averaging Approach

ORCID Identifiers

0000-0002-6991-2468

Document Type

Article

Source of Publication

Journal of Macroeconomics

Publication Date

12-1-2019

Abstract

© 2019 Elsevier Inc. Motivated by the mixed evidence in previous literature, we re-examine the effects of various types of government spending, taxes, and overall budget surplus/deficit, on economic growth. To address the model uncertainty issue that may have plagued earlier studies, we employ a Bayesian Model Averaging (BMA) approach. We use a panel data set for OECD countries for the 1990–2013 period, and allow for a wide range of other potential growth determinants. The results suggest a robust link between only some fiscal variables and economic growth in the short to medium run. On the spending side, productive public spending has a robust positive effect on growth. On the revenue side, we document a robust negative effect for the top corporate tax rate. Finally, our results suggest that a cyclically adjusted budget surplus has a robust positive effect on economic performance. Some, but limited, evidence points to effects of productive expenditure and of top income tax rates on medium-to-long-run growth. With regard to timing of short-to-medium run effects, our results show that most effects occur with a lag of two years.

ISSN

0164-0704

Publisher

Elsevier Ltd

Volume

62

First Page

103158

Disciplines

Business

Keywords

Economic growth, Fiscal policy, Public spending, Taxes

Scopus ID

85072703863

Indexed in Scopus

yes

Open Access

yes

Open Access Type

Green: A manuscript of this publication is openly available in a repository

Link to Full Text

Share

COinS