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The findings from the VECM for BBS data reveal that there is a positive and significant relationship between FD and GDPGR, supporting the Keynesian theory, while findings from the VECM for World Bank data indicate that the impact of Fiscal Deficit (FD) on GDPGR is mild but negative and significant at the 5% level. This contradicts the Keynesian the...
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The study investigated the contributions of foreign remittances on economic growth in Nigeria from 1980 to 2016, using the Vector error correction modelling (VECM) technique to analyze the long run and short run impact of disaggregated remittances that is Migrants 'Remittances and Workers' Remittances to find out whether they will perform different...
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... In every economy, public expenditure has active role to play in reducing regional disparities, developing social overheads and creation of infrastructure in the form of transport and communication facilities, growth of capital goods industries, basic and key industries, research and development (Hussain & Haque, 2017). Public expenditure on infrastructure stimulates the growth process of economy and the channel through which this manifest depends largely on the precise form and size of expenditure allocated to economic and social development projects (Agu, Onwuka and Aruomah, 2019). ...
... In another study, Hussain & Haque (2017) analyzed the impact of fiscal deficit on economic growth in Bangladesh using fully modified ordinary least squares (Fat-025). Their findings revealed that there was a positive and significant relationship between fiscal deficit and the growth rate of GDP thereby supporting the Keynesian theory. ...
The study investigated the effects of deficit financing on the Nigerian economy using data that covered 41 years (1981 to 2021). Real gross domestic product (RGDP) was the dependent variable, while government budget deficit financing disaggregated into different sources of budget deficit financing represented the explanatory variables. The ordinary least squares (OLS) regression method was used for the tests and analyses. Results established that both non-bank public sources of deficit financing and banking system sources of deficit financing had positive and significant effects on growth. However, non-bank public deficit financing positively led the Nigerian economy and was followed by banking system deficit financing. Both ways and means and external deficit financing sources were negative and insignificant in influencing the Nigerian economy. Ways and means were third while external deficit financing was fourth in descending order of influence on RGDP growth. The study further applied the Augmented Dickey-Fuller (ADF) approach to unit root tests and observed that the variables were integrated at both levels and first difference, leading to the application of the Autoregressive Distributed lag (ARDL) approach to data estimation. The ARDL bounds tests showed that the model specified for the study followed a long-run path and that a long-run relationship existed between the dependent variable and the explanatory variables. The estimation of the long-run and error correction estimation indicated that the independent variables had a time-varying effect on the real gross domestic product of Nigeria. That ARDL estimation of the error correction mechanism also showed that RGDP adjusted rapidly to short-run discrepancies in the long run. Finally, the error correction mechanism showed that external sources of budget deficit financing, non-banking system public deficit financing, ways and means source of deficit financing, gross capital formation, real interest rate and exchange rate, all had robust effects on growth, though with varying directions of influence. Based on the foregoing, the study has recommended deficit financing, more especially non-bank public deficit financing and banking system deficit financing as better options for attaining the much desired rapid and sustainable economic growth of Nigeria as they have been proven to be non-inflationary in practice compared to ways and means and external source of deficit financing over the years.
... If fiscal deficits grow unjustifiable, interest payments will rise, and the country may default. Therefore, the level of government spending should be set to sidestep massive fiscal deficits that lead to debtfinancing (Hussain & Haque, 2017). Moreover, the government budget does not have to be balanced, and a fiscal deficit can be covered by printing money and/or debt. ...
The economic crises of Pakistan and Afghanistan are linked to the high fiscal deficit in the past, which has affected economic growth. The research aims to investigate the effect of fiscal deficit on economic growth with the data from 1973 to 2022 in Pakistan and 2002 to 2022 in Afghanistan and the ARDL procedure to estimate the model. The study investigates whether the fiscal deficit improves economic growth and how much the deficit can be minimized to maintain economic stability in Pakistan and Afghanistan. This study found that, over a long period, the fiscal deficit adversely impacts GDP growth in Pakistan. Similarly, the national debt has an adverse effect on GDP growth in Afghanistan. Moreover, in the near run, the fiscal deficit has a negative effect on GDP growth in Pakistan. Similarly, the national debt has a negative effect on GDP growth in Afghanistan. Therefore, this study concluded that the fiscal deficit harms GDP growth and does not support the Keynesian theory regarding the deficit in Pakistan and Afghanistan. Thus, this study endorsed that the government should increase the revenue to cover expenditures to eradicate or lessen the fiscal deficit and debt. Article History
... Bangladesh, a rapidly growing and developing economy, continues to issue a deficit fiscal budget regularly (Hussain and Haque, 2017). Previous studies have discussed the contribution of Zakat to development plans, such as its significant impact on poverty reduction (Hassan, 2007). ...
Purpose: Zakat, one of the fundamental pillars of Islam, holds the potential to significantly contribute to fiscal consolidation, particularly in developing nations. However, the national-level potential of Zakat often remains unexplored. This study aims to explore the potential of national-level Zakat and the opportunity to integrate it into the fiscal framework.
Design/methodology/approach: This study estimates Zakat's potential on national financial and economic components. The components include bank deposits, shares and securities, pensions (provident fund), industrial production and trade services, mining resources, Ushr on agro-crops and forestry, Ushr on livestock, Ushr on fishery, gross domestic product (GDP), national budget and national revenue. The study gathers data, ranging from FY2000 to FY2018, on national economic sectors from reliable secondary sources. The net value (NV) of each indicator is calculated as NV ¼ TV À LA, where NV is the wage-adjusted net value after deducting the living adjustment (LA) value from the sectoral total. The proposed LA value, approximately 20%, is suggested to be deducted from the total sectoral value of each sector (excluding specific industries with preadjusted wages), equating to the Nisab value.
Findings: It is estimated that the aggregate potential of Zakat in Bangladesh was US$9,749m in FY2018, compared to US$809m in FY2000, revealing the value is 3.77% of GDP and 21% of the national fiscal budget. In FY2018, the service sector was the largest contributor (30%), followed by bank deposits (23%). Pension funds made minimal contributions, whereas shares and bonds, as well as the manufacturing sector, each made a 10% contribution to the estimated Zakat potential. Zakat on agriculture output accounted for 15% of the total. The aggregate potential Zakat in FY2018 was 12% higher than that in FY2000.
Originality/value:The paper highlights a novel contribution through its nuanced analysis of sector-specific Zakat on macrolevel data and its implications within the fiscal framework. The results suggest that Zakat has substantial potential to impact fiscal dynamics, providing valuable insights for policymakers and stakeholders to recognize the national-level Zakat for development plans such as the five-year plan. The study
... Through domestic public investment, the government and public corporations buy properties, invest in real estate, and purchase tangible assets (Victor and Dickson, 2013). According to Hussain and Haque (2017), public investment is necessary to build the social capital and infrastructure required for private sector investments in the economy's sectors that offer the highest returns on capital. According to Barro and Sala-i-Martin (1992), public investment in infrastructures such as roads, communications networks, and energy sources, by raising the productivity of the private sector and creating new business opportunities serve as essential building blocks for the expansion of private investment. ...
Most developing countries, including Nigeria, are stuck in a vicious cycle of low investment caused by insufficient domestic savings, resulting in inadequate capital formation and a large savings-investment gap. Given the significance of investment in poverty alleviation and economic growth, the study conducted a disaggregated analysis on the impact of various measures of investment on economic growth in Nigeria from 1981 to 2020. Using the conventional and structural break stationarity tests, as well as the autoregressive distributed lag (ARDL) approach, the epistemological findings confirm a compelling co-integrating relationship among the study variables and show that credit to the private sector, domestic investment, economic liberalization, foreign portfolio investment, and interest rate have a significant positive impact on long-term growth, whereas foreign direct investment, capital expenditure, and inflation rate retarded growth substantially in the long-run. Furthermore, the short-run results revealed that economic liberalization, private-sector credit, and portfolio investment all correlate positively with growth. In contrast, foreign direct investment, infrastructure spending, and inflation rate are profoundly negative. The study therefore advocated for effective fiscal and monetary policy coordination to lower the cost of doing business, incentivize and open up opportunities for domestic and foreign investors, increase infrastructure spending to create jobs, reduce poverty and sustain growth.
... He therefore recommended that policymakers in Vietnam as well as other emerging countries in need of urgent economic recovery, must reduce their fiscal deficit rates so as to experience a more rapid and sustainable economic growth in the very near future. Hussain and Haque (2017) studied the effect of deficit financing on economic growth in Bangladesh. ...
The impact of deficit financing on economic growth has long been recognized in the extant literature given that this type of financing is germane to accelerated and sustainable economic growth. Yet, Nigeria did not seem to have utilized deficit financing proceeds to invest in those related infrastructural facilities that would generate income and augment domestic savings, thereby helping to make and sell quality products and services that are internationally competitive, and ultimately stimulate economic growth. Rather, the seemingly weak governance in the country engaged in massive misappropriation of public funds and outright corruption thereby exacerbating unemployment, insecurity, and widespread poverty both in the urban and rural areas of the country. The main aim of the study therefore was to investigate empirically the impact of deficit financing on economic growth in Nigeria for the period 1981 to 2019. Secondary data for the study were sourced from the Central Bank of Nigeria and the World Bank Global Development Index. The fully modified ordinary least squares methodology of the econometrics was employed to analyze the data of the study. The major findings of the study showed that the federal government domestic debt variable, the federal government budget deficit variable, the foreign exchange reserves variable, and the broad money supply variable exerted positive impacts on economic growth, while the external debt variable exerted a negative and insignificant impact on economic growth in Nigeria. The study therefore concluded that public borrowing in Nigeria can only induce rapid and sustainable economic growth only and if only borrowed funds are massively invested in related infrastructural facilities that would generate revenue which would augment domestic financial resources. Accordingly, the study recommended that the federal government of Nigeria should carefully study the state of its economy to enable it invest in those infrastructural facilities that are thought germane to the achievement of sustainable economic growth.
... Bangladesh's economy is the 41st largest in the world and the second largest in South Asia (Hossain & Wadood, 2020). It is an emerging tiger among South Asian countries because of consistent economic growth (Hussain & Haque, 2017), nearly 6% to 8% over the past decade. However, the contribution of tax revenue to GDP is not remarkable. ...
The study attempts to examine the relationship among revenue growth factors from different angles and provides a comprehensive overview of tax revenue collection for developing countries. The impact of income tax, customs duty, and value-added tax on the gross domestic product is examined using the ordinary least-square (OLS) multiple regression approach. To confirm the association, a multiple regression model is applied to time-series data. SPSS software, MS Excel, is used to draw the empirical results, trend analysis, and some graphical presentation to reach the study's objective. The findings show that while the value-added tax has a significant impact and the highest coefficient, regardless of country, income tax and customs duty may or may not be significant depending on the circumstances. It triggers effectual and efficacious economic growth. The paper has implications in policy-making areas where governments are seeking how to stimulate revenue growth effectively and efficiently. To promote economic growth, the tax net and tax rate on luxury goods should be increased along with human resources in the tax administration for the short term. But in the long term, decentralization & digitization of tax administration, dismantling the existing tax barriers and good governance are necessary.
... It is observed that the detrimental effect of fiscal deficit on the economic growth for the ASEAN countries during the pre-global financial crisis (GFC); in contrast, an opposite result was observed during post-GFC (Lau & Yip, 2019). In a similar study based on two different data sources for Bangladesh, Hussain and Haque (2017) observed diametrically opposite results. The result from one source supported the Keynesian viewpoint, while the other supported the neo-classical viewpoint. ...
In a federal system like India, the states’ fiscal performance shapes their growth trajectories. However, the empirical studies on the relationship between the composition of fiscal deficit and economic growth in India are limited. This study attempts to fill the gap by bifurcating the gross fiscal deficit into revenue deficit (RD) and effective fiscal deficit (EFD) for 14 major Indian states from 1980-81 to 2019-20. The findings reveal that RD, EFD, tax revenues, non-tax revenues, and inflation rates negatively impact the state's economic growth. Nevertheless, the effect of RD is relatively stronger than EFD. Additionally, private investment and Fiscal Responsibility Legislation (FRLs) have positive impacts. The interaction between the FRL dummy and EFD significantly impacts growth, but economic policy reform (EPR) does not affect growth. Further, the panel threshold fixed-effect model confirms the existence of a threshold effect of both RD and EFD, which implies that not all deficits have detrimental effects on growth. When deficit is constrained within the specific limits, it stimulates economic growth. However, surpassing the critical limits have an adverse impact on growth. These findings highlight the importance of prudent fiscal management and effective policy implementation for the economy's sustainable and inclusive economic development.
... Economic growth plays a key part in determining the association between fiscal stability and the forex gap. Keynesian asserts that FD is beneficial for economic growth while neo-classical suggests that it hinders economic growth (Baskaran & Feld, 2013;Hussain & Haque, 2017). Many studies suggested a negative impact of FD on output (Alagidede et al., 2018;Hussain and Haque 2017;Kirchner and van Wijnbergen 2016;Rana and Wahid 2017). ...
... Keynesian asserts that FD is beneficial for economic growth while neo-classical suggests that it hinders economic growth (Baskaran & Feld, 2013;Hussain & Haque, 2017). Many studies suggested a negative impact of FD on output (Alagidede et al., 2018;Hussain and Haque 2017;Kirchner and van Wijnbergen 2016;Rana and Wahid 2017). Mohanty (2019) examined the link between FD and CAD. ...
... The study confirms that output is an integral determinant of FD following the Keynesian view (Mawejje & Odhiambo, 2020). Hussain and Haque (2017) claimed that if the FD is sustainable, it may impact the output positively. However, in the literature, it is observed that unsustainable deficits reduce the output and cause output to fall due to higher interest payments. ...
Macroeconomic stability is a major objective to be achieved for sustainable economic growth. However, fiscal stability has been prone to instability in dual-gaps in a developing country like Pakistan. This study examines the impact of the saving-investment gap (SI), foreign exchange gap (XM), and the mediating impact of output on fiscal deficit using the time-series data from 1973 to 2018 in Pakistan using Autoregressive Distributed Lag (ARDL). The results show that an increase in the saving-investment gap and output lower the fiscal deficit. However, an increase in the foreign exchange gap increases the fiscal deficit. While considering the interaction effect, SI and output negatively but XM and output interaction positively affect the fiscal deficit. Since SI and output stabilize the fiscal position while the XM destabilizes the latter, the government should strategize to increase savings, investment, exports, and national output and reduce unnecessary imports.
... There exist significant positive effects of fiscal deficit on the economic growth of Nigeria during the Military regime (1985)(1986)(1987)(1988)(1989)(1990)(1991)(1992)(1993)(1994)(1995)(1996)(1997)(1998); however, the same impact turned statistically insignificant during the democratic regime period (1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013) (Edame and Okoi, 2015). Another study by Hussain and Haque (2017) found that there is a positive relationship between economic growth and fiscal deficit in Bangladesh when authors used Bangladesh Bureau of Statistics data; however opposite holds when they used data from a different source for the same period (1993-94 to 2015-16). Martin and Frdmanesh (1990) found that although tax revenue is inversely related to economic growth, tax is associated with higher growth when benefits are taken into account to reduce deficits. ...
Considering a standard economic growth model, this study tries to empirically evaluate the effects of fiscal deficits on the economic growth of 14 major Indian states from 1980-81 to 2019-20. The panel fixed effect regression establishes that gross fiscal deficit (GFD), tax revenue, and inflation rates have a significant adverse impact on economic growth. In contrast, private investment, gross enrolment ratio (GER) in primary education, and the adoption of Fiscal Responsibility Legislations (FRLs) have favourable effects; non-tax revenues, GER in secondary education, and economic policy reform (EPR) didn't show any significant effect. Where FRLs were enacted, fiscal deficits showed a positive impact on growth in the post-FRL period. Further, we find a threshold effect of fiscal deficit on growth, implying that when GFD lies within a specified threshold, it has a positive impact; beyond this limit, it impedes states’ economic growth.
... While the neo-classical theory shows that government expenditures financed via public debts will have crowding-out effects, the Keynesian school of thought shows that increased government spending financed through public debts will have "crowding-in" effects, in that investment and production activities will increase in the private sector when the economy is stimulated via government spending (Hussain and Haque, 2017). Hence, theoretically, external and internal debts can affect overall economic performance, measured through the GDP, negatively or positively, depending on the specific conditions of individual countries. ...
This paper examines the long-run effects of external and domestic debts on economic growth in Nigeria, using the dynamic OLS cointegration technique and data spanning 1981 to 2017. The results show that none of external and domestic debts enhances growth in Nigeria in the long-run. Although domestic debt tends to have a positive long-run effect on growth, the effect is not statistically significant. On the other hand, external debt has a negative and statistically insignificant long-run effect on growth. However, when government revenues (oil and non-oil revenues) are included in the analysis, only oil revenue has a statistically significant positive effect on economic growth in the long-run, indicating the high importance of oil in Nigeria. These findings imply that the country should reduce the use of debts to finance expenditure and seek to enhance growth with oil revenue maximally without relying unnecessarily on oil.
