Publication: Public Finance, Governance, and Growth in Transition Economies : Empirical Evidence from 1992-2004
Date
2007-06
ISSN
Published
2007-06
Author(s)
Pushak, Taras
Tiongson, Erwin R.
Varoudakis, Aristomene
Abstract
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.
Citation
“Pushak, Taras; Tiongson, Erwin R.; Varoudakis, Aristomene. 2007. Public Finance, Governance, and Growth in Transition Economies : Empirical Evidence from 1992-2004. Policy Research Working Paper; No. 4255. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/b5224895-d928-57a1-a87a-d63fdecb8dd1 License: CC BY 3.0 IGO.”
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