Economic, Political and Institutional Determinants of Budget Deficits Volatility in Selected Asian Countries.

Attiya Y. Javid, Umaima Arif, Asma Arif


In the present study the economic, political and institutional
sources of budgets deficits are analysed for two regions South Asia and
ASEAN countries for the period 1984 to 2010. The results reveal that
high income, rising inflation and large budget to GDP ratio are
associated with budget instability, where as a strong inertia in budget
deficit volatility exists. The exposure of more external shocks make the
budget deficit more volatile, however, countries with high population
growth have less volatile budget deficits. The results indicate that
high level of political stability and democracy and improvement in
social and economic condition reduces the budget deficit volatility.
High corruption and low institutional quality lead to more fluctuations
in the budget deficit. The results suggest that political and
institutional factors have a direct impact on fiscal instability beyond
the economic reasons to effect fluctuations. The results of the current
study leads to important implication that by improving the quality of
institutions, creating situations for economic stability and moving
towards democratic regimes would ensure more stable fiscal deficits and
resultantly positive effect on the long term economic growth. JEL
classification: H61, D70, E60 Keywords: Budget Deficits Volatility, Per
Capita GDP, Openness, Inflation, Political Stability, Institutional
Quality, Democracy and Corruption

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