Economic Growth and Fiscal Policy

This projects aims to analyse the long-run growth implications of fiscal policy. Fiscal policy is typically considered a short-run issue. Nonetheless, short run policy instruments may exhibit major implications for the long-run performance of an economy, and this will be the focus of this research proposal. We will analyse three major categories of fiscal policy instruments, namely tax revenues, government expenditures, and budget deficits. The first novel research question asks whether fiscal policy can in theory be an engine of economic growth. The second research question then investigates whether fiscal policy empirically had an impact on economic growth in Austria, using Vector Error Correction Methods. This would enable the first empirical test, whether specific fiscal policy rules, like the zero budget deficit, makes economic sense.The third research question then extends this analysis to the European content, using a dynamic panel estimation. This third part of the study will differ from previous work on the one hand by using qualitatively superior data, and on the other hand by exploring both time series and cross section characteristics of the dataset in the dynamic panel estimation.