| Title : | Fiscal policy and economic growth in Nepal | | Material Type: | printed text | | Authors: | Tanka Prasad Chalise, Author | | Publication Date: | 2017 | | Pagination: | 90p. | | Size: | GRP/Thesis | | Accompanying material: | 10/B | | Languages : | English | | Descriptors: | Economic development
Fiscal policy
| | Class number: | 338.947 | | Abstract: | Fiscal policy is the government spending and taxation that influences the economy of the nation.Fiscal policy can play a significant role in economic growth. In the short term, counter-cyclical fiscal expansion can help support aggregate demand and growth during cyclical downturns. Conversely, fiscal contraction can cool down an economy that is growing at an unsustainable pace and thus faces the risk of overheating. Advanced economies in particular have a long history of using taxes and government spending to smooth the business cycle. At the same time, fiscal policy can also have a major impact on medium- and long-term economic growth. This is especially true in developing economies where the private sector is relatively weak and underdeveloped. Public spending on physical infrastructure, such as roads, ports, and power plants, affects the productivity of all firms andindustries, and the entire economy. Likewise, public spending on education fosters human capital, a vital ingredient to long-term growth. Taxes can harm growth because they distort economic incentivesand behavior; for example, corporate income taxes have a negative impact on investment. But generally, different taxes vary in the extent of their distortionary impacts.
This study attempts to explore the impact of fiscal policy on economic growth in Nepal.The study is based on the secondary data, which were gathered for the period of 27 years from 1990 to 2016. The main sources of data are Quarterly Economic Bulletin published by Nepal Rastra bank, Economic Survey published by Ministry of Finance and World Development Indicators of World Bank.The study has employed descriptive as well as causal comparative research design.The research design adopted in this study is descriptive and causal comparative research design as this study examines the impact of government expenditure, tax revenue, domestic debt, foreign debt and gross fixed capital formations on economic growth of Nepal.
For integration and cointegration technique, this study employed Augmented Dickey Fuller (ADF) unit root and ARDL approach to cointegration by Pesaran et al. (1997) in order to test the of stationarity and the long run relationship, respectively. The ARDL approach has been, further, used to analyze the long run dynamics of the macroeconomic variables and economic growth relationship. The error correction model has been developed from ARDL approach to analyze the short run relationship between macroeconomic variables and economic growth. The same model has also been used to analyze the direction of causality in short run. The regression diagnostic tests have also been performed to check the validity of proposed model. The Jarque – Bera (JB) test, Ramsey test, and Lagrange Multiplier (LM) tests are used to test the normality, functional form and serial correlation respectively.
The result shows that the gross domestic product growth ranges from a minimum of negative 0.12 percent to a maximum of 8.22 percent having the average of 4.46 percent. The per capita growth ranges from a minimum of negative 1.42 percent to a maximum of 5.38 percent moving around the average of 2.69 percent. The government expenditure to GDP of Nepal is minimum for the year 1999 with 15.50 percent and maximum for the year 2016 with 36.00 percent with average government expenditure to GDP of 20.17 percent. The tax revenue to GDP ranges from the maximum for the year 2016 with 19.50 percent and minimum for the year 1991 with 6.60 percent having the average tax of 11.52 percent. The domestic debt to GDP ranges from a minimum value of 0.08 percent in 1994 to maximum value of 4.20 percent in 2016 leading to the average of 1.70 percent over the study period. The analysis of the pattern of foreign debt to GDP shows that the foreign debt is moving around the mean of 1.44 percent with a minimum of 0.70 percent for the year 2011 and a maximum of 2.90 percent for the year 2016.
The correlation analysis shows that domestic debt and foreign debt are negatively related to economic growth. Whereas government expenditure, tax revenue, and gross fixed capital formation are positively related to economic growth in context of Nepal.
The ARDL bound test analysis depicts that there is the existence of co-integration relationship between GDP growth and fiscal variables. The ARDL approach of co-integration shows that there is negative and significant relationship between domestic debt and foreign debt with GDP growth in long-run as well as in short run. The ARDL model further postulates that government expenditure has positive and significant association with GDP growth in both long-run as well as short-run. The study also depicts that the existence of positive associations between the gross fixed capital formations and the GDP growth rate in the long run whereas, it has negative associations in the short run. The ARDL approach of co-integration shows that there is negative relationship of tax revenue with GDP growth for long-run but, it has positive relationship in short-run. The significant and negative error correction coefficients further provide substantial evidence that there is long-run association among the economic growth and selected fiscal variables.
The result of this study revealed that there is unidirectional causality from gross fixed capital formation and tax revenue to economic growth (GDP growth). The granger causality also depicts that there is unidirectional causality from tax revenue to economic growth (per capita growth).
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Fiscal policy and economic growth in Nepal [printed text] / Tanka Prasad Chalise, Author . - 2017 . - 90p. ; GRP/Thesis + 10/B. Languages : English | Descriptors: | Economic development
Fiscal policy
| | Class number: | 338.947 | | Abstract: | Fiscal policy is the government spending and taxation that influences the economy of the nation.Fiscal policy can play a significant role in economic growth. In the short term, counter-cyclical fiscal expansion can help support aggregate demand and growth during cyclical downturns. Conversely, fiscal contraction can cool down an economy that is growing at an unsustainable pace and thus faces the risk of overheating. Advanced economies in particular have a long history of using taxes and government spending to smooth the business cycle. At the same time, fiscal policy can also have a major impact on medium- and long-term economic growth. This is especially true in developing economies where the private sector is relatively weak and underdeveloped. Public spending on physical infrastructure, such as roads, ports, and power plants, affects the productivity of all firms andindustries, and the entire economy. Likewise, public spending on education fosters human capital, a vital ingredient to long-term growth. Taxes can harm growth because they distort economic incentivesand behavior; for example, corporate income taxes have a negative impact on investment. But generally, different taxes vary in the extent of their distortionary impacts.
This study attempts to explore the impact of fiscal policy on economic growth in Nepal.The study is based on the secondary data, which were gathered for the period of 27 years from 1990 to 2016. The main sources of data are Quarterly Economic Bulletin published by Nepal Rastra bank, Economic Survey published by Ministry of Finance and World Development Indicators of World Bank.The study has employed descriptive as well as causal comparative research design.The research design adopted in this study is descriptive and causal comparative research design as this study examines the impact of government expenditure, tax revenue, domestic debt, foreign debt and gross fixed capital formations on economic growth of Nepal.
For integration and cointegration technique, this study employed Augmented Dickey Fuller (ADF) unit root and ARDL approach to cointegration by Pesaran et al. (1997) in order to test the of stationarity and the long run relationship, respectively. The ARDL approach has been, further, used to analyze the long run dynamics of the macroeconomic variables and economic growth relationship. The error correction model has been developed from ARDL approach to analyze the short run relationship between macroeconomic variables and economic growth. The same model has also been used to analyze the direction of causality in short run. The regression diagnostic tests have also been performed to check the validity of proposed model. The Jarque – Bera (JB) test, Ramsey test, and Lagrange Multiplier (LM) tests are used to test the normality, functional form and serial correlation respectively.
The result shows that the gross domestic product growth ranges from a minimum of negative 0.12 percent to a maximum of 8.22 percent having the average of 4.46 percent. The per capita growth ranges from a minimum of negative 1.42 percent to a maximum of 5.38 percent moving around the average of 2.69 percent. The government expenditure to GDP of Nepal is minimum for the year 1999 with 15.50 percent and maximum for the year 2016 with 36.00 percent with average government expenditure to GDP of 20.17 percent. The tax revenue to GDP ranges from the maximum for the year 2016 with 19.50 percent and minimum for the year 1991 with 6.60 percent having the average tax of 11.52 percent. The domestic debt to GDP ranges from a minimum value of 0.08 percent in 1994 to maximum value of 4.20 percent in 2016 leading to the average of 1.70 percent over the study period. The analysis of the pattern of foreign debt to GDP shows that the foreign debt is moving around the mean of 1.44 percent with a minimum of 0.70 percent for the year 2011 and a maximum of 2.90 percent for the year 2016.
The correlation analysis shows that domestic debt and foreign debt are negatively related to economic growth. Whereas government expenditure, tax revenue, and gross fixed capital formation are positively related to economic growth in context of Nepal.
The ARDL bound test analysis depicts that there is the existence of co-integration relationship between GDP growth and fiscal variables. The ARDL approach of co-integration shows that there is negative and significant relationship between domestic debt and foreign debt with GDP growth in long-run as well as in short run. The ARDL model further postulates that government expenditure has positive and significant association with GDP growth in both long-run as well as short-run. The study also depicts that the existence of positive associations between the gross fixed capital formations and the GDP growth rate in the long run whereas, it has negative associations in the short run. The ARDL approach of co-integration shows that there is negative relationship of tax revenue with GDP growth for long-run but, it has positive relationship in short-run. The significant and negative error correction coefficients further provide substantial evidence that there is long-run association among the economic growth and selected fiscal variables.
The result of this study revealed that there is unidirectional causality from gross fixed capital formation and tax revenue to economic growth (GDP growth). The granger causality also depicts that there is unidirectional causality from tax revenue to economic growth (per capita growth).
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Fiscal policy and economic growth in Nepal 
