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Institute of Public Finance

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Fiscal policy and growth in new member states of the EU: a panel data analysis

Martina Dalić, Zagreb School of Economics and Management, Zagreb, Croatia

Fiscal policy can have positive effects on economic growth through changes in the structure of total expenditure, i.e. reductions in unproductive or current expenditure, lower taxes, and higher government investment – provided that it is offset by a decrease in unproductive expenditure. Such changes reduce the size of government, which positively affects output growth. Lower volatility of government investment expenditure is also growth-enhancing. However, the strongest growth effects are found for improvements in the fiscal balance, in particular if achieved by a reduction in the size of government expenditure. This suggests that a cautious fiscal policy stance may be the best way to improve growth.

Keywords:  growth; productive expenditure; distortionary taxation; volatility; fiscal balance

Year:  2013   |   Volume:  37   |   Issue:  4   |   Pages:  335 - 360   

Full text (PDF)   |   DOI: 10.3326/fintp.37.4.1   |   E-mail this article   |   Download to citation manager
 December, 2013
IV / 2013
EBSCO Publishing
ISSN 1846-887X
e-ISSN 1845-9757
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