nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒02‒05
six papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Taxation and Economic Growth : An Empirical Analysis on Dynamic Panel Data of WAEMU Countries By NANTOB, N'Yilimon
  2. Government spending shocks, wealth effects and distortionary taxes By James Cloyne
  3. On the Interaction Between Economic Growth and Business Cycles By Ivan Mendieta-Muñoz
  4. Medium and long run prospects for UK growth in the aftermath of the financial crisis By Nicholas Oulton
  5. Pushing on a string: US monetary policy is less powerful in recessions By Silvana Tenreyro; Gregory Thwaites
  6. Institutions and Development in MENA Region: Evidence from the Manufacturing Sector By Arayssi, Mahmoud; Fakih, Ali

  1. By: NANTOB, N'Yilimon
    Abstract: This paper studies the impact of taxation on economic growth of the eight WAEMU countries. Among the critiques addressed to the public sector, numerous are those that refer principally to the negative effects which entail high weight and increasing of taxation. The growth rate can be influenced by economic policy choice relative to taxation which has an effect on the decisions of economic agents and is due to the productive public expenditures. The reason is that high level of taxation can be distortionary and like this negatively influences economic growth while law weight of taxation can generate some returns which will be enclosed in production. In order to catch this phenomenon in the WAEMU countries, we have contrary to the more previous studies accounted a non-linear effect of taxation on economic growth. Mobilizing a dynamic panel data specification over the period 1989–2012, the econometric results suggest the absence of a non-linear relationship between taxation and economic growth of WAEMU. Specifically, weak and high rates respectively at short run and long run do not create distortions and hence affect positively economic growth of WAEMU and generate income. This effect on economic growth then increase over time as the fiscal revenue increase.
    Keywords: Economic growth, fiscal system, public policy, panel, WAEMU
    JEL: C33 H20 H21 H27 O40
    Date: 2014–04–22
  2. By: James Cloyne
    Abstract: The size and sign of the government spending multiplier crucially depends on how the spending is financed and how consumers respond to implied future tax increases. I investigate this issue in an estimated New Keynesian DSGE model with distortionary labor and capital taxes and, importantly, with preferences that allow the wealth effect on labor supply to vary. Specifically I assess whether the model can explain the empirical evidence for the United States and examine the transmission mechanism, for realistic policy rules. I show that the model can match the positive empirical response of key variables including output, consumption and the real wage. I find that the role of the wealth effect on labor supply is small and that while tax rates rise following a spending shock these increases are modest, with debt rising. Deficit financed spending increases are therefore expansionary, but this is due to sticky prices rather than the wealth effect channel.
    Keywords: fiscal policy; government spending shocks; spending multiplier; busyness cycles
    JEL: E20 E32 E62 H20
    Date: 2014–05
  3. By: Ivan Mendieta-Muñoz
    Abstract: The present paper studies the interaction between short-run fluctuations and economic growth by presenting empirical evidence of the impact of business cycle fluctuations on the rate of growth consistent with a constant unemployment rate in 13 Latin American and 18 OECD countries during the period 1981-2011. The results of both parametric (OLS and a panel estimator that allows for parameter heterogeneity and cross section dependence) and non-parametric (a penalized regression spline estimator) econometric techniques show that this measure of potential output experiences positive (negative) changes in periods of high (low) growth in the majority of countries, and, hence, that business cycles fluctuations have statistically significant effects on potential output. However, in contrast to the sample of OECD countries, less than half of the sample of Latin American countries experience statistically significant changes of this measure of potential output in periods of low growth.
    Keywords: growth and cycles; potential rate of growth; rate of growth consistent with a constant unemployment rate
    JEL: E32 O40 O51 O54
    Date: 2014–12
  4. By: Nicholas Oulton
    Abstract: In this paper I argue that the financial crisis is likely to have a long term impact on the level of labour productivity in the UK while leaving the long run growth rate unaffected. Based entirely on pre-crisis data, and using a two-sector growth model, I project the future growth rate of GDP per hour in the market sector to be 2.61% p.a. Based on a cross-country panel analysis of 61 countries over 1950-2010, the permanent reduction in the level of GDP per worker resulting from the crisis could be substantial, about 5½%. The cross-country evidence also suggests that there are permanent effects on employment, implying a possibly even larger hit to the level of GDP per capita of about 9%.
    Keywords: productivity; potential output; growth; financial; banking crisis; recession
    JEL: E32 H62 J24 O41
    Date: 2013–10
  5. By: Silvana Tenreyro; Gregory Thwaites
    Abstract: We estimate the impulse response of key US macro series to the monetary policy shocks identified by Romer and Romer (2004), allowing the response to depend flexibly on the state of the business cycle. We find strong evidence that the effects of monetary policy on real and nominal variables are more powerful in expansions than in recessions. The magnitude of the difference is particularly large in durables expenditure and business investment. The effect is not attributable to differences in the response of fiscal variables or the external finance premium. We find some evidence that contractionary policy shocks have more powerful effects than expansionary shocks. But contractionary shocks have not been more common in booms, so this asymmetry cannot explain our main finding.
    Keywords: asymmetric effects of monetary policy; transmission mechanism
    JEL: E32 E52
    Date: 2013–04
  6. By: Arayssi, Mahmoud (Lebanese American University); Fakih, Ali (Lebanese American University)
    Abstract: This paper examines the role of institutions (including civil law origin), financial deepening and degree of regime authority on growth rates in the Middle East and North Africa (MENA) region using panel data through a fixed effect model. The results reveal that English civil law origin and the establishment of the rule of law work with the development of financial institutions to increase economic growth in these economies; however, the democratization of the political institutions and foreign direct investment do not assist financial development in promoting economic growth. The findings emphasize the prominence of overcoming institutional weaknesses and establishing transparent public policy governing businesses as a pre-requisite for successful universal integration in developing countries.
    Keywords: economic growth, institutional development, financial development, MENA region
    JEL: G2 O16 P48
    Date: 2015–01

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