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Regime Changes And The Sustainability Of Fiscal Imbalance In East Asian Countries

Author

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  • Ahmad Zubaidi Baharumshah

    (Universiti Putra Malaysia)

  • Evan Lau

    (Universiti Malaysia Sarawak)

Abstract
In the aftermath of the 1997 Asian financial crisis, fiscal policy is playing a bigger role in smoothing the business cycle and getting the crisis-affected countries back on their growth paths. The main purpose of this paper is to assess empirically the fiscal policy regimes in five Asian countries using a formal framework based on the government’s intertemporal budget constraints (GIBC). For this purpose, we relied on an array of time-series methods and quarterly frequency data of nearly three decades that ended in 2003:Q2. Our conclusions are; first, the evidence indicates that the fiscal stance in Thailand and Korea are on their sustainable path while the Philippines and Malaysia satisfy only the necessary condition for sustainability. Second, we found that revenues are growing at a rate faster than government spending for Singapore, a country that have recorded large surpluses for most of the sample period. Third, the results show a one-way causation from expenditure to revenue for Korea, Singapore and Thailand. This finding indicates that reducing the size of government spending may improve fiscal budget deficits without having to undergo changes in the overall strategy. Fourth, we observed a long-run feedback causality in the revenue-expenditure nexus for the case of Malaysia and the Philippines, which may require fiscal synchronization instrument policies to moderate the post-crisis fiscal imbalances. Together, these results demonstrate the diverse fiscal patterns but they should be useful as a means of understanding the complexities of economic integration in the region.

Suggested Citation

  • Ahmad Zubaidi Baharumshah & Evan Lau, 2005. "Regime Changes And The Sustainability Of Fiscal Imbalance In East Asian Countries," Macroeconomics 0504001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0504001
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    5. Ismet GOCER & Mehmet MERCAN, 2016. "Which country after Greece? Sustainability of budget deficits in selected EU countries: A panel cointegration analysis with multiple structural breaks under cross-section dependence," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(608), A), pages 205-220, Autumn.
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    7. Samuel S Jibao & Niek Schoeman & Ruthira Naraidoo, 2010. "Fiscal Regime Changes and the Sustainability of Fiscal Imbalance in South Africa: A Smooth Transition Error-Correction Approach," Working Papers 201023, University of Pretoria, Department of Economics.
    8. Chin-Hong Puah Author_Email: chpuah@feb.unimas.my & Evan Lau & Hui-Fern Teo, 2011. "Testing Budget Sustainability In Sarawak State," 2nd International Conference on Business and Economic Research (2nd ICBER 2011) Proceeding 2011-221, Conference Master Resources.
    9. Yunus, Nafeesa, 2020. "Time-varying linkages among gold, stocks, bonds and real estate," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 165-185.
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    11. Chen, Shyh-Wei & Wu, An-Chi, 2018. "Is there a bubble component in government debt? New international evidence," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 467-486.
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    Keywords

    fiscal sustainability; government intertemporal budget constraint; nonstationarity.;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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