The effects of shock of budget deficit and public sector debt and government financing methods on consumption and wealth components of economic welfare index
Alireza Fathi
1
(
Faculty of Economics and Accounting, Islamic Azad University, South Tehran Branch
)
fatemeh zandi
2
(
Faculty of Economics and Accounting, Islamic Azad University, South Tehran Branch
)
bijan safavi
3
(
Faculty of Economics and Accounting, Islamic Azad University, South Tehran Branch
)
Mahnaz Rabiei
4
(
Faculty of Economics and Accounting, Islamic Azad University, South Tehran Branch
)
Keywords: Government budget deficit, public sector debt, economic welfare index, consumption, wealth,
Abstract :
The purpose of this research is to investigate the impact of shock of budget deficit, public sector debt and government financing methods on the economic welfare index (with an emphasis on the consumption and wealth components) using the Structural Vector Autoregressive Model and annual data over a period of time from 1371 to 1401 S.H.. The results indicate that in the long term, the budget deficit has no effect on the consumption and wealth index, the effect of public sector debt (government debt to the country's banking system, including borrowing from the central bank, banks and credit institutions) on the consumption index is negative and on the wealth index is positive. The effect of money issuance and liquidity growth on the consumption and wealth index is negative, the effect of government financing through the issuance of bonds on the consumption index is positive and more strongly positive on the wealth index. Direct tax on the consumption index has positive effects and tax on wealth and property also has an inverse relationship with the wealth index. The results of the research indicate that the government budget deficit alone does not have an effect on the consumption and wealth index, while the consequences of the budget deficit and financing methods can overshadow consumption and wealth.
- Andersen, Torben (2018). Intergenerational Conflict and Public Sector Size and Structure: A Rationale for Debt Limits?. Department of Economics and Business Economics, Aarhus University, PeRCent, CESifo, CEPR and IZA. https://doi.org/10.1016/j.ejpoleco.2018.07.005
- Ashrafi, Yekta, Salimifar, Mostafa, Adeli, Mohammad Hossein, & Tavakolian, Hossein (2018). Investigating the Effects of Government Expenditures on Welfare in Iran: Application of Dynamic Stochastic General Equilibrium Models. Quartery Journal of Economic Research and Policies, Vol. 26, Issue 85, pp. 33-82. ]In Persian[
- Barro, Rj (1989). The Ricardian Approach to Budget Deficits. Journal of Economic Perspectives, Vol. 3, No 2. https://doi.org/10.1257/jep.3.2.37
- Baum, Christopher, & Schaffer, Mark (2013). A General Approach to Testing for Autocorrelation. Stata Conference, New Orleans
- Centre for the Study of Living Standards (2021). The Index of Economic Well-being for New Brunswick, 1981-2019.
- Greiner, A. (2012). Debt and Growth: Is There a Non-Monotonic Relation. Working Papers in Economics and Management, No. 04-2012, Bielefeld University.
- Gulley, O. David (1994). An Empirical Test of the Effects of Government Deficits on Money Demand. Applied economics, Vol. 26, Issue 3, pp. 239-247. https://doi.org/10.1080/00036849400000005
- Hamilton, J.D. (1994). Time Series Analysis. Princeton University Press.
- Horry, Hamidreza, Jalae, Seyyed Abdolmajid, & Lashkari, Maryam (2020). Investigation the Effect of Business Cycle on the Index of Economic Well-being in Iran. Iranian Journal of Economic Research, Vol. 25, Issue 82, pp. 149-172. https://doi.org/10.22054/ijer.2020.11913 ]In Persian[
- Liaqat, Zara (2019). Does Government Debt Crowd Out Capital Formation? A Dynamic Approach Using Panel VAR. Economics Letters, Vol. 178, pp. 86-90. https://doi.org/10.1016/j.econlet.2019.03.002
- Lütkepohl, Helmut (2005). New Introduction to Multiple Time Series Analysis. ISBN: 978-3-540-27752-1
- Mowlaei, Mohammad, & Golkhandan (2013). Long-Run and Short-Run Effects of Budget Deficit on Economic Growth in Iran. Quarterly Journal of Economic Strategy, Vol. 2, Issue 5, pp. 95-115. ]In Persian[.
- Nademi, Younes, & Moftakhari, Ali (2017). The Optimum Government Activities and Social Welfare in Iran during the Period of 1975-2012. Social Welfare Quarterly, Vol. 17, Issue 67, pp. 9-35. ]In Persian[
- Ndoricimpa, Arcade (2017). Analysis of Asymmetries in the Tax-Spending Nexus in Burundi. Journal of Economics and Political Economy, Vol. 4, Issue 1, pp. 53-70. https://doi.org/10.1453/jepe.v4i1.1160
- Osberg, Lars & Sharpe, Andrew (2001). The Index of Economic Well-being: An Overview. Revised version of a paper presented at the National Conference on Sustainable Development Indicators organized by the National Round Table Environment and the Economy, Westim Hotel, Ottawa, Ontario. https://doi.org/10.2753/0577-5132530402
- Panizza, Ugo & Presbitero, Andrea F. (2013). Public Debt and Economic Growth in Advanced Economies: A Survey. Swiss Journal of Economics and Statistics, No. 149, pp. 175-204. https://doi.org/10.1007/BF03399388
- Rubaie, Qahtan Lafta Attia, & Ahmed, Amna Shehab (2021). Measuring and Analyzing the Repercussions of Public Debt in Financing the General Budget Deficit for the Iraqi Economy after 2003 Using the (Eviews) Program. Nahrain University, Iraq, Materials Today: Proceedings, Vol. 80, Part 3, pp. 3144-3154. https://doi.org/10.1016/j.matpr.2021.07.180
- Srebrny, Jemima Peppel (2021). Not all Government Budget Deficits Are Created Equal: Evidence from Advanced Economies' Sovereign Bond Markets. Journal of International Money and Finance, Vol. 118. https://doi.org/10.1016/j.jimonfin.2021.102460
- Westphal, Cristina Checherita, & Ždarek, Václav (2017). Fiscal Reaction Function and Fiscal Fatigue: evidence for the Euro Area. European Central bank, Working Paper Series, No. 2036.