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Yıl 2017, Sayı : Temmuz 2017 (Özel Sayı ) Sayfalar 116 - 126 2017-07-15
Influence Of Budget Deficit On Economic Growth: The Case Of The Republic Of Macedonia
Aleksandar NİKOLOSKİ,Pece NEDANOVSKİ
24 261

Öz Having a balanced budget is very important for achieving long-term and stable economic growth in everyone country.Namely, the budget itself is a very powerful and useful tool and instrument for defining and realizing development policies in acountry. The usefulness and the efficiency of this instrument largely depend on whether it is balanced or in deficit. Structural budgetdeficit cannot be analyzed if abstracted and separated because it influences large number of macroeconomic trends, but it is alsounder influence of numerous macroeconomic factors. And fiscal factors, as structure of public expenditure, structure of publicrevenue, government efficiency, level of tax avoidance and tax evasion, level of income and wealth inequality etc.The stands of economic theory differ when it comes to the influence the budget deficit has on the economic growth of acountry. According to some theoreticians this link is positive; according to others it is inverse one whereas according to third partyof them there is a neutral connection between the budget deficit and the economic growth. The classic macroeconomic paradigmperceived budget deficit as an enemy of the economy due to the line of negative effects it causes. However, in the course of timegovernments accepted budget deficit as an instrument that can boost public investments which further lead to stimulating long-termeconomic growth. Namely, when it comes to the stabilization policies of a country, the idea about budget deficit can be stressed out,and the budget deficit representing a reflection of either the increase in public expenditure or the decrease of the distortive taxes, allfor the purpose of having the economy maintain its trend of a stable and long-term growth.The causal connection between the deficit and the economic growth can be perceived through the fact that positiveeconomic growth generates additional public revenues. Therefore, the government is the one that should choose between cycle orcounter-cycle fiscal policy. Negative economic growth causes contraction in the economy, and as a result of this it is certain that theexpansive fiscal policy accompanied by large budget deficit is not appropriate in periods of economic growth.Countries should make a rational use of their unused resources if they want to overcome the issues related to budgetdeficit. Most often providing funds through indebting is not a good solution because it leads to increase in the public debt.Consequently, governments often decide to increase the rates of direct and indirect taxes or to introduce a new form of tax that isexpected to increase the rates of public revenues and to reduce the budget deficit. The structure of fiscal policy should beappropriately formulated so as to enable the taxpayers to bear certain tax burden, and the tax incentives to alleviate the issue of taxevasion. The outcome of this all would be having higher tax income and lower budget deficit.Economic growth has reversible influence on budget deficit. In fact, the best way to decrease budget deficit is to promoteeconomic growth. If economy is in progress, then it is real to expect increased tax revenues, without having the necessity to increasetax rates. Therefore, boosting economic growth is the least painful way to decrease budget deficit. Having all that in mind,governments should be careful when planning public revenues and expenditures i.e. when planning the budget deficit level, all forthe purpose of creating preconditions for reaching the aimed level of economic growth.It is this paper’s aim to analyze the influence of budget deficit on the economic growth in the case of the Republic ofMacedonia. In the context of the appropriate econometric model, budget deficit is represented as a main independent variable, andthe gross domestic product as a dependent variable. Meanwhile, there shall be inspected what is the possible influence and howsignificant it is and whether it is possible to be delivered in short or long term perspective. While testing the model, two basic testsare used i.e. Breusch-Godfrey test for serial correlation and Breusch-Pagan-Godfrey test for heteroskedasticity. By making use ofthe presented model there should be clarified what is the connection between public finance and economic growth in the Republ ic ofMacedonia as a potential EU member country. A significant prerequisite for doing so is having a detailed examination of whetherpublic finance provide basis that further contributes for short-term influence on economic performances thus boosting economicgrowth.Larger number of empirical research point out that the level of budget deficit of over 3% of the gross domestic productleads to deceleration of economic growth. In cases when deficit is less than 1.5% of the GDP, it is neutral in respect to economicgrowth. This statement is not valid for the case of the Republic of Macedonia, because in 2003 budget deficit totaled 4.1 % of theGDP and at the same time the growth rate was 2.9% of the GDP. According to our findings, budget deficit should not be biggerthan 6% of GDP in order not to have negative effect on the economic growth. This is also supported with the constructedeconometric model, which simultaneously shows that much greater is the influence of other factors on the economic growthcompared to the budget deficit. The results of the model show that on a level of importance of 5%, the budget is positively correlatedwith the GDP growth rate on a long-run. Decrease in budget deficit for 1% shall lead to increase in GDP growth rate for 0.35%.The value of the determinant coefficient is relatively low (17.44%), which shows us the low influence budget deficit has on theeconomy growth rate. Therefore, a conclusion can be drawn that by making use of fiscal policy a relevant influence can be made onthe economic growth in the long run.

Anahtar Kelimeler

Economic growth, budget deficit, cause relation, Republic of Macedonia
Adama, C. - Bevan D. (2005), “Fiscal deficits and growth in developing countries”, Journal of Public Economics, Vol. 89, pp. 570-598.
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Yayımlanma Tarihi 15 Temmuz 2017
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Yayımlanma Tarihi : 15 Temmuz 2017


Makalenin Yazarları
Aleksandar NİKOLOSKİ
Pece NEDANOVSKİ