Fiscal Policy, Government Size and Economic Performance: Empirical Evidence from Selected Asean Countries

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THE UNIVERSITY OF TAMPERE

TRAN THI HA

FISCAL POLICY, GOVERNMENT SIZE AND ECONOMIC PERFORMANCE: EMPIRICAL EVIDENCE FROM SELECTED ASEAN COUNTRIES

Tran Thi Ha

19.1.2012

Master’s Thesis

University of Tampere School of Management
Author: Tran Thi Ha
Title: Fiscal policy, government size, and economic performance: Empirical evidence from ASEAN countries Master’s thesis: 73 pages
Date: February 2012
Keywords: Fiscal policy, growth, government expenditure, ASEAN countries ______________________________________________________________________________

ABSTRACT

In an endogenous growth model with public finance including tax, expenditure and components of government expenditure by function, this study characterizes fiscal policy for some ASEAN economies, also the relationship between the growth rate, tax rate and expenditure shares on the GDP. Moreover, it examines the impact of different components of government expenditure by function on economic growth. I use panel data of two samples. There are seven ASEAN countries in first sample and five ASEAN countries in second sample over 28 years. I use linear regression techniques for panel data. According to estimation results, government spending has negative and significant effects on the growth rate. In contrast, tax revenue has positive impact on economic growth. My empirical results are obtained by using Barro model (1990) and Devarajan et al. (1996).

TABLE OF CONTENT

ABSTRACT2

LIST OF TABLES4

1.Introduction5

1.1research background5
1.2The research problems, delimitation, and the research target6 1.3research approach and methods6

2.Related literature and theoretical focus7

2.1Public finance7
2.2Endogenous growth model10
2.2.1The Neoclassical model of exogenous growth10
2.2.2Endogenous growth model12
2.2.3Endogenous growth versus exogenous theory15
2.3Public finance in endogenous growth model16
2.3.1Government spending in a simple model of endogenous growth -Barro model17 2.3.2The Devarajan et al. (1996) model with optimal fiscal policy23 2.4Previous study28

3.The fiscal policy of ASEAN countries33

3.1.ASEAN countries and growth performance33
3.2.A review fiscal policies of ASEAN countries39
3.2.1Government expenditure policy39
3.2.2ASEAN and Fiscal strength to continue recently53

4.Empirical model of selected ASEAN countries56

4.1Building of growth model with fiscal policy for ASEAN countries56 4.2Data resources59
4.3Results62
4.4Conclusion and policies recommendation67

References70

LIST OF FIGURES

Figure 1 : The neoclassical growth model14
Figure 2: Government size and economic growth33
Figure 3: Growth rate of ASEAN-3 countries, 1980-2010 (USD)41 Figure 4: Growth rate of ASEAN-4 countries, 1980-2010 (%)42 Figure 5: Revenue and Expenditure Shares 1993-2010 in ASEAN countries, Malaysia and Singapore43 Figure 6: Revenue and Expenditure Shares 1993-2010 in ASEAN countries, Thailand, Philippines and Indonesia44 Figure 7: Revenue and Expenditure Shares 1993-2010 of Vietnam45 Figure 8: Government Expenditure on education in ASEAN countries48 Figure 9: Tax revenue and economic growth in some selected ASEAN countries54 Figure 10: The scater graph of government expenditure/GDP ratio and growth rate, Thailand56

LIST OF TABLES

Table 1: ASEAN economy in 200938
Table 2: Land and population of ASEAN countries 200738
Table 3: GDP per capita of ASEAN countries (USA)40
Table 4: Growth rate of GDP in ASEAN countries,...
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