Public Finance, Governance, and Growth in Transition Economies : Empirical Evidence from 1992-2004

This paper revisits the early empirical literature on economic growth in transition economies, with particular focus on fiscal policy variables-fiscal balance and the size of government. The baseline model uses a parsimonious specification, drawn f...

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Bibliographic Details
Main Authors:	Pushak, Taras, Tiongson, Erwin R., Varoudakis, Aristomene
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCOUNTING ADVERSE EFFECTS ALLOCATION ALLOCATION OF RESOURCES ANNUAL GROWTH ANNUAL GROWTH RATE BRIBES BUDGET CONSTRAINT BUREAUCRACY BUSINESS ENVIRONMENT CAPITAL EXPENDITURE CAPITAL STOCK CAUSAL EFFECT CONSENSUS DATA ANALYSIS DEPENDENT VARIABLE DESCRIPTIVE STATISTICS DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPING ECONOMIES DIRECT INVESTMENT ECONOMIC ACTIVITY ECONOMIC GROWTH ECONOMIC OUTLOOK EMPIRICAL EVIDENCE EMPIRICAL LITERATURE EMPIRICAL MODELS EMPIRICAL STUDIES EMPIRICAL WORK EXPENDITURE LEVELS EXPENDITURE POLICIES EXPENDITURE PROGRAMS FISCAL ADJUSTMENT FISCAL ADJUSTMENTS FISCAL BALANCE FISCAL CONSOLIDATION FISCAL DATA FISCAL DEFICITS FISCAL IMBALANCES FISCAL POLICY FISCAL POSITION FISCAL STABILITY FIXED EFFECTS FIXED EFFECTS ESTIMATOR FOREIGN DIRECT INVESTMENT GOOD GOVERNANCE GOVERNANCE INDICATOR GOVERNANCE INDICATORS GOVERNANCE QUALITY GOVERNMENT CAPITAL GOVERNMENT CONSUMPTION GOVERNMENT EFFECTIVENESS GOVERNMENT EXPENDITURE GOVERNMENT EXPENDITURES GOVERNMENT PROGRAMS GOVERNMENT SIZE GOVERNMENT SPENDING GROWTH EQUATION GROWTH LITERATURE GROWTH MODEL GROWTH PERFORMANCE GROWTH RATE GROWTH RATES GROWTH REGRESSION GROWTH REGRESSIONS HEALTH CARE HIGH TAXES HUMAN CAPITAL INCOME INCOME LEVELS INDEPENDENT VARIABLES INDIRECT APPROACH INFLATION INSTITUTIONAL QUALITY INVESTMENT CLIMATE LABOR FORCE LONG TERM LONG-RUN GROWTH LONG-TERM GROWTH LOW-INCOME COUNTRIES MACROECONOMIC INSTABILITY MACROECONOMIC STABILITY MACROECONOMIC STABILIZATION MARGINAL BENEFIT MARGINAL BENEFIT OF EXPENDITURE MARGINAL BENEFITS MARGINAL COST MARGINAL COST OF TAXATION MARGINAL EFFECT MARKET ECONOMY MARKET FAILURE MEMBER STATES NATIONAL AUTHORITIES NEGATIVE IMPACT NET INVESTMENT PER CAPITA GROWTH PER CAPITA INCOME POLICY AGENDA POLICY REFORM POLICY RESEARCH POLICY VARIABLES POLITICAL DYNAMICS POVERTY REDUCTION PRIVATE INVESTMENT PRIVATE SECTOR PROGRAM DESIGN PUBLIC CAPITAL PUBLIC CONSUMPTION PUBLIC EXPENDITURE PUBLIC EXPENDITURES PUBLIC FINANCE PUBLIC GOODS PUBLIC INSTITUTIONS PUBLIC INVESTMENT PUBLIC INVESTMENTS PUBLIC SECTOR PUBLIC SECTOR GOVERNANCE PUBLIC SECTOR MANAGEMENT PUBLIC SERVICE PUBLIC SERVICE DELIVERY PUBLIC SPENDING REFORM PROCESS REFORM PROGRAMS RELATIVE IMPORTANCE RESOURCE MANAGEMENT SECTOR ACTIVITIES SERVICE DELIVERY SIGNIFICANT EFFECT SIGNIFICANT EVIDENCE SIZE OF GOVERNMENT SOCIAL SECURITY SOCIAL SPENDING STRUCTURAL BREAK STRUCTURAL REFORM STRUCTURAL REFORMS TAX ADMINISTRATION TAX BURDEN TAX POLICY TOTAL EXPENDITURE TOTAL EXPENDITURES TOTAL SAMPLE TRANSITION ECONOMIES UNCERTAINTY
Online Access:	http://documents.worldbank.org/curated/en/2007/06/7726702/public-finance-governance-growth-transition-economies-empirical-evidence-1992-2004 http://hdl.handle.net/10986/7415

Description
Summary:	This paper revisits the early empirical literature on economic growth in transition economies, with particular focus on fiscal policy variables-fiscal balance and the size of government. The baseline model uses a parsimonious specification, drawn from Fischer and Sahay (2000), of economic growth as a function of initial conditions, stabilization, liberalization, and structural reform. The paper expands the data used in previous analyses by up to 10 years and finds unambiguous evidence that fiscal balance matters for growth, while confirming other previous findings on the correlates of economic growth in transition economies. In addition, the paper extends the baseline model and explores potential sources of nonlinearities in the relationship between growth and public finance. A key finding is that determinants of growth may vary in relative importance, depending on the underlying institutional quality. The evidence indicates that there could be higher growth payoffs from macroeconomic stability and public expenditure in countries characterized by relatively better public sector governance as measured by relevant indicators. In addition, the size of government matters for growth in a nonlinear manner: Beyond indicative thresholds of expenditure levels, public spending has a negative impact, while at levels below the threshold, there is no measurable impact on economic growth.

Public Finance, Governance, and Growth in Transition Economies : Empirical Evidence from 1992-2004

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