Fiscal Policy and Debt Dynamics in Developing Countries
Using a new tax database for 28
countries and a variety of econometric methods, this paper
contributes to the debate on the effects of fiscal policy on
economic activity in a number of ways. The analysis finds
that tax cuts have a stimulative effect on economic growth
in developing countries. Lowering the personal income tax
rate by 1 percentage point, or cutting revenues by 1 percent
of gross domestic product increases gross domestic product
by 0.3-0.4 percent on impact and 0.8 percent in the long
run. The author finds that cuts in personal income taxes are
more effective in stimulating growth than cuts in corporate
or valued added tax rates. The author incorporates debt
dynamics into a fiscal vector autoregression model for a
number of developing countries. Existing estimates of the
effects of fiscal policy on growth use linear time-series
methods, which may assess the effects of fiscal policy along
a debt-path that is unsustainable. Incorporating the
non-linear relationship between government expenditure,
taxes, and debt alters estimates of the impact of fiscal
policy on gross domestic product in several countries. In
Brazil, for example, conventional time-series methods may
overstate the effects of fiscal policy on gross domestic
product, by ignoring the detrimental effects of debt accumulation.
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Bibliographic Details
| Main Author: |
Ilzetzki, Ethan |
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| Language: | English |
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| Published: |
2011-05-01
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| Subjects: | ADDED TAX,
AUTOREGRESSION,
BOND,
CD,
CLOSED ECONOMIES,
CORPORATE INCOME TAX,
CORPORATE TAX,
CORPORATE TAX RATE,
CORPORATE TAXES,
DEBT,
DEBT ACCUMULATION,
DEDUCTIONS,
DEVELOPING COUNTRIES,
DEVELOPMENT POLICY,
ECONOMIC OUTLOOK,
ELASTICITY,
EXCHANGE RATE,
EXPENDITURES,
FEDERAL TAX,
FISCAL POLICY,
FIXED EXCHANGE RATES,
FLEXIBLE EXCHANGE RATES,
FOREIGN CURRENCY,
GDP,
GINI COEFFICIENT,
GOVERNMENT ACCOUNTS,
GOVERNMENT EXPENDITURE,
GOVERNMENT REVENUE,
GROSS DOMESTIC PRODUCT,
HOUSEHOLD INCOME,
INCOME TAX,
INCOME TAXES,
INFLATION,
INTEREST PAYMENTS,
INTEREST RATE,
INTERNATIONAL BANK,
INTERNATIONAL FINANCE,
M2,
MACROECONOMICS,
MULTIPLIERS,
NET DEBT,
OPEN ECONOMIES,
OUTPUT,
PERSONAL INCOME,
PERSONAL INCOME TAX,
PERSONAL INCOME TAXES,
PROGRESSIVE TAX,
PUBLIC FINANCE,
REGRESSIVE TAX,
SALES TAX,
SALES TAXES,
SOCIAL SECURITY TAX,
STATUTORY TAX,
STATUTORY TAX RATES,
TAX,
TAX BRACKETS,
TAX CHANGES,
TAX CREDIT,
TAX CUTS,
TAX RATE,
TAX RATES,
TAX REVENUE,
TAX REVENUES,
TRADING,
UNEMPLOYMENT,
UNEMPLOYMENT RATE,
VALUE ADDED,
VALUE ADDED TAX,
WORLD DEVELOPMENT INDICATORS, |
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110519140736
https://hdl.handle.net/10986/3429
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