nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2014‒04‒05
three papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Is the Slovak Economy Doing Well? A Twin Deficit Growth Approach By Elias Soukiazis; Eva Muchova; Pedro A. Cerqueira
  2. Discretionary fiscal policy and economic activity in Greece By Athanasios O. Tagkalakis
  3. Does Social Capital Matter for European Regional Growth By Peiró Palomino Jesús; Forte Deltell Anabel; Tortosa-Ausina Emili

  1. By: Elias Soukiazis (Faculty of Economics, University of Coimbra and GEMF, Portugal); Eva Muchova (Faculty of National Economy, University of Economics in Bratislava, Slovakia); Pedro A. Cerqueira (Faculty of Economics, University of Coimbra and GEMF, Portugal)
    Abstract: Recently, Soukiazis E., Cerqueira P., and Antunes M. (2013) developed a model – hereafter the SCA model - that takes into account the hypotheses that internal and external imbalances can affect economic growth and additionally relative prices are assumed to be not neutral in the pace of economic growth. Although the SCA model is in the spirit of the well known balance of payments constraint hypothesis which became known as Thirlwall´s Law (Thirlwall, 1979) it is more complete in the sense that it considers, along with external imbalances (trade deficits) that internal imbalances (budget deficits or public debt) are additional constraints to economic growth. The recent euro-zone public sovereign debt crisis that started in some peripheral countries shows that when internal imbalances are excessive they can constrain growth and domestic demand, causing severe effects on unemployment rates. The aim of this paper is to apply the more complete SCA model to the Slovak economy (a newly euro-zone member since 2009) and check its accuracy for explaining the growth path in this country. Our empirical analysis shows that Slovakia grew at a higher rate than that allowed by the balance of payments constraint rate and this is consistent with the accumulation of current deficits over the period considered. A scenarios analysis shows that improving trade competitiveness and changing the import and export shares toward current account equilibrium will be the most successful way to achieving higher growth in Slovakia. Financing the economy at a lower cost is also beneficial to growth.
    Keywords: internal and external imbalances, price and income elasticities of external trade, equilibrium growth rates, 3SLS system regressions, supply constraints.
    JEL: C32 E12 H6 O4
    Date: 2014–03
  2. By: Athanasios O. Tagkalakis (Bank of Greece)
    Abstract: This paper investigates the effects of discretionary fiscal policy changes on economic activity and its subcomponents in Greece in the period 2000-2011. Changes in government spending and net taxes have Keynesian effects. An increase in government consumption has the most pronounced positive effects on output growth, private consumption and non-residential investment, while it reduces residential investment. Cuts in the public investment programme crowd in private investment, but are associated negatively with the net exports ratio. Both indirect and direct tax hikes lower private consumption, private investment and output growth. Additionally, higher direct taxes, by lowering disposable income, reduce import demand, thus, improving the trade balance.
    Keywords: : Discretionary fiscal policy; economic growth; consumption; investment; net exports
    JEL: E62 O52 H30
    Date: 2013–12
  3. By: Peiró Palomino Jesús (Universidad Jaime I); Forte Deltell Anabel (Jaume I University); Tortosa-Ausina Emili (INSTITUTO VALENCIANO DE INVESTIGACIONES ECONÓMICAS (Ivie) UNIVERSITY JAUME I)
    Abstract: This working paper analyzes the role of different elements of social capital in economic growth for a sample of 85 European regions during the period 1995-2008. Despite the remarkable progress that social capital and European regional economic growth literatures have experienced over the last two decades, initiatives combining the two are few, and entirely yet to come for the post-1990s period. Recent improvements in data availability allow this gap in the literature to be closed, since they enable the researcher to consider the traditionally disregarded Central and Eastern European regions. This is particularly interesting, since they are all transition economies that recently joined the European Union, with relatively low levels of social capital. On the methodological side, we follow the Bayesian paradigm, which enables us to make direct inferences on the parameters to be estimated and deal with parameter uncertainty, leading to a deeper understanding of the relationships being investigated. Contrary to other contributions for the European context, results suggest, among other findings, that trust and social norms might have some implications for regional growth, whereas the role of active participation in groups remains unclear.
    Keywords: Bayesian inference, economic growth, European regions, social capital
    JEL: Z13 C15 R10
    Date: 2014–02

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