Citation:

Adhitya Wardhono, Yulia Indrawati, M. Abd. Nasir, Ciplis Gema Qori’ah, Maritsa Rizkiyah. "Behavioral Studies of Fiscal Variables in ASEAN-3: Modern Monetary Policy Approaches" International Research Journal of Economics and Management Studies, Vol. 3, No. 6, pp. 44-53, 2024.

Abstract:

The dilemma of fiscal deficits during an economic crisis is supposed to stimulate economic growth, but empirically, it often undermines economic growth. The economic crisis provides important lessons on the prudence and complexity of budget deficit management policies. Theoretically, the impact of fiscal deficits is still debatable, and there are distinct limits. Modern Monetary Theory (MMT), as a new heterodox economic thinking rule, attempts to contextualize the combination of monetary and fiscal policy using the endogeneity of money and the role of taxes in overcoming fiscal deficits. This study aims to examine the impact of fiscal deficits on economic growth in ASEAN-3 based on the Modern Monetary Theory framework. Using secondary data and the Generalized Method of Moments (GMM) research method, the results indicate that the behavior of fiscal variables in ASEAN-3 cannot be said to be in accordance with the MMT framework. Only fiscal deficit, domestic savings, inflation, and money supply variables show behavior in accordance with MMT.

References:

[1] Abba, L. (1943). Functional Finance and the Federal Debt. Social Research, February, 38–51.
[2] Abdullah, H., Yien, L. C., & Khan, M. A. (2019). The Impact of Fiscal Policy on Economic Growth in Asean-5 Countries. February.
[3] Achchuthan, S., & Velnampy, T. (2013). Fiscal Deficit and Economic Growth : A Study on Sri Lankan Economic Perspective. 3(3), 166–175.
[4] Aero, O., & Ogundipe, A. A. (2018). International Journal of Economics and Financial Issues Fiscal Deficit and Economic Growth in Nigeria: Ascertaining a Feasible Threshold. International Journal of Economics and Financial Issues, 8(3), 296–306.
[5] Aghion, P., Comin, D., Howitt, P., & Tecu, I. (2016). When does domestic savings matter for economic growth? IMF Economic Review, 64(3), 381– 407.
[6] Ağirman, E., Sercemeli, M., & Ozcan, M. (2013). Shadow Banking : an Overview.
[7] Ahmad, N. (2013). The Role of Budget Deficit in the Economic Growth of Pakistan. Global Journal of Management and Business Research Economics and Commerce, 13(5), 1–4.
[8] Akram, V., & Rath, B. N. (2019). Fiscal sustainability in India: evidence from Markov switching and threshold regression models. Studies in Economics and Finance.
[9] Arjomand, M., Emami, K., & Salimi, F. (2016). Growth and Productivity; The Role of Budget Deficit in the MENA Selected Countries. Procedia Economics and Finance, 36(16), 345–352.
[10] Armstrong, P. (2017). The Oxford Handbook of Post-Keynesian Economics, Volume 1, Theory and Origins / The Oxford Handbook of Post-Keynesian Economics, Volume 2, Critiques and Methodology. In Review of Political Economy (Vol. 29, Issue 3).
[11] Asyulinda, Amar, S., & Aimon, H. (2015). Pengaruh Inflasi, Kebijakan Fiskal Dan Moneter Terhadap Pengangguran Di Indonesia. Jurnal Kajian Ekonomi Vol 3, No 6 (2015): Jurnal Kajian EKonomi, 3(6), 1–17.
[12] Bachurewicz, G. (2017). The Post Keynesian Endogenous Money Supply Hypothesis : Evidence from The Post Keynesian Endogenous Money Supply Hypothesis : Evidence from Poland. April.
[13] Baker, A., & Murphy, R. (2020). Modern Monetary Theory and the Changing Role of Tax in Society. Social Policy and Society, 19(3), 454–469.
[14] Barro, R. (1990). Government Spending in a Simple Model of Endogenous Growth. Journal of Political EconomyEconomy, 98(5), 103–125.
[15] Bell, S. (1998). The Hierarchy of Money. In Working Paper No. 231 (Issue 231).
[16] Bernheim, D. B. (1989). Neoclassical Perspective on Budget Deficits. Journal of Economic Perspective, 3(2), 55–72.
[17] Blöndal, J. R., Hawkesworth, I., & Choi, H. (2009). Budgeting in Indonesia. OECD Journal on Budgeting, 2, 1–31.
[18] Bošnjak, M. (2018). Governments spending and growth nexus with nonlinear adjustments: re-examining the Croatian and Slovenian case. Economic Research-Ekonomska Istrazivanja , 31(1), 1607–1617.
[19] Cebula, R. J. (1955). The Impact Of Federal Deficits Government On Economic Growth In The United States : An Empirical Investigation, 1955-1992. International Review of Economics & Finance, 4(3), 245–252.
[20] Chakraborty, L. S. (2007). Fiscal Deficit, Capital Formation, and Crowding Out : Evidence from India. August 2002.
[21] Cinar, M., Eroglu, I., & Demirel, B. (2014). Examining the Role of Budget Deficit Policies in Economic Growth from A Keynesian Perspective. International Journal of Economics and Finance, 6(10), 191–200.
[22] Correia, I., Farhi, E., Nicolini, J. P., & Teles, P. (2013). Unconventional Fiscal Policy at the Zero Bound. American Economic Review, 103(4), 1172– 1211.
[23] Edwards, S. (2019). Modern Monetary Theory: Cautionary Tales from Latin America. Cato Journal, 39(3), 529–561.
[24] Ekinci, R., Tuzun, O., & Ceylan, F. (2020). The relationship between and economic growth: Experiencing some inflation targeting countries. Econstor, 24(1 (87)), 6–20.
[25] Epstein, G. A. (2019). What’s Wrong with Modern Monetary Theory, in Palgrave Macmillan.
[26] Fatima, G., Ahmed, M., & Rehman, W. ur. (2012). Consequential Effects of Budget Deficit on Economic Growth of Pakistan. International Journal of Economics and Finance, 3(7), 203–208.
[27] Fischer, S. (1990). The Government Budget Constraint. The World Bank Research Observer, 5(2), 127–142.
[28] Folorunso, B. A. (2013). Relationship between Fiscal Deficit and Public Debt in Nigeria: an Error Correction Approach. Journal of Economics and Behavioral Studies, 5(6), 346–355.
[29] García Matres, J. de O., & Viet Le, T. (2021). The Impact of Money Supply on the Economy: A Panel Study on Selected Countries. Journal of Economic Science Research, 4(4), 48–53.
[30] Gevorkyan, A. (2015). Economic Crisis. International Management, 6(69), 1–4.
[31] Godley, W. (1996). Money, Finance and National Income Determination: An Integrated Approach. In Working Paper No. 167.
[32] Gujarati, D. N., & Porter, D. C. (2015). Basic Econometrics Fifth Edition.
[33] Gyasi, G. (2020). The Impact of Fiscal Deficit on Economic Growth: Using the Bound Test Approach in The Case of Morocco. Munich Personal REPEC Archive, 96228, 1–21.
[34] Hadziahmetovic, A., Halebic, J., & Colakovic–Prguda, N. (2018). Economic Crisis: Challenge for Economic Theory and Policy. Eurasian Journal of Economics and Finance, 6(4), 48–55.
[35] Handa, J. (2009). Monetary Economics (2nd ed.). Taylor & Francis Group.
[36] Hart, N. (2013). Macroeconomic Policy Formulation: Functional Finance Versus Sound Finance. Global Business and Economics Review, 15(1), 36– 48.
[37] Hussain, M. E., & Haque, M. (2017). Fiscal Deficit and Its Impact on Economic Growth : Evidence from Bangladesh. 5(37).
[38] Innes, A. M. (1914). The credit theory of money. The Banking Law, 31, 151-168.
[39] Kelton, S. (2019). Modern Monetary Theory is not Recipe for Doom. Bloomberg.Com, 1–5.
[40] Knapp, G. F. (1924). The State Theory of Money.
[41] Kryeziu, N. H., & Hoxha, E. (2021). Fiscal deficit and its effects on economic growth. International Journal of Finance & Banking Studies (2147-4486), 10(1), 62–70.
[42] Landau, D. (1983). Government Expenditure and Economic Growth : Government Expenditure A Cross-Country Study. Southern Economic Journal, 49(3), 783–792.
[43] Lavoie, M. (1984). The Endogenous Flow of Credit and the Post Keynesian Theory of Money. Journal of Economics, 3(18), 771–797.
[44] Lavoie, M. (2011). The Monetary and Fiscal Nexus of Neo-Chartalism: A Friendly Critical Look.
[45] Lavoie, Marc. (2013). The Monetary and Fiscal Nexus of Neo-Chartalism: A Friendly Critique. Journal of Economic Issues, 47(1), 1–32.
[46] Li, L., Tan, H., & Zhang, H. (2020). Government Finance and Money Creation in China: An MMT Perspective. Chinese Economy, 53(4), 329–341.
[47] Lin, M.-T. (1967). Keynes’s Theory and Inflation. Kansas State University.
[48] Makin, T. (2005). Fiscal Risk in ASEAN. Agenda - A Journal of Policy Analysis and Reform, 12(3).
[49] Mankiw, N. G. (2016). Macroeconomics (J. E. Tuts & C. Marin (eds.); 9th ed.). Worth Publisher.
[50] Marimuthu, M., Khan, H., & Bangash, R. (2021). Is the fiscal deficit of ASEAN alarming? Evidence from fiscal deficit consequences and contribution towards sustainable economic growth. Sustainability (Switzerland), 13(18).
[51] Mhungu, N. T., & Sibanda, V. (2017). The Impact of Multi-Currency System on the Viability of the Zimbabwean Hospitality Sector. 2(1), 31–39.
[52] Minsky, H. P. (1986). Stabilizing an Unstable Economy.
[53] Moore, B. . (1979). The Endogenous Money Stock. Journal of Post Keynesian Economics 2, 1, 49–70.
[54] Moore, B. . (1988). Horizontalists and Verticalists: The Macroeconomics of Credit Money.
[55] Nasir, M. A., Qo’riah, C. G., Indrawati, Y., Wardhono, A., & Wicaksono, S. (2016). Tax Policy on Exports of Crude Palm Oil Products in Indonesia : Challenges and Dilemmas. International Conference on Agribusiness Marketing, May, 707–713.
[56] Nersisyan, Y., & Wray, L. R. (2016). Modern Money Theory and The Facts of Experience. Cambridge Journal of Economics, 40(5), 1297–1316.
[57] Nguyen, C. T., & Trinh, L. T. (2018). The impacts of public investment on private investment and economic growth. Journal of Asian Business and Economic Studies, 25(1), 15–32.
[58] Nwakobi, P. C., Echekoba, F. N., & Ananwude, A. C. (2018). Fiscal Deficit in an Oil Dependent Revenue Country and Selected Macroeconomic Variables : a Time Series Analysis from Nigeria ( 1981-2015 ). European Journal of Economic and Financial Research, 3(1), 126–167.
[59] Ocolișanu, A., Dobrotă, G., & Dobrotă, D. (2022). The Effects of Public Investment on Sustainable Economic Growth: Empirical Evidence from Emerging Countries in Central and Eastern Europe. Sustainability (Switzerland), 14(14).
[60] Omodero, C. O. (2019). Effect of Money Supply on Economic Growth: A Comparative Study of Nigeria and Ghana. International Journal of Social Science Studies, 7(3), 16.
[61] Organization for Economic Co-operation and Development (OECD). (2013). Trust in Government, Policy Effectiveness and the Governance Agenda. In Government at a Glance 2013.
[62] Palley, T. (2019). What’s Wrong With Modern Money Theory (Mmt): a Critical Primer. IMF Working Papers, 44.
[63] Palley, T. I. (2014). Modern money theory (MMT): the emperor still has no clothes. 1, 1–26.
[64] Pasichnyi, M. (2017). Empirical Study of The Fiscal Policy Impact on Economic Growth. Problems and Perspectives in Management, 15(3), 316–322.
[65] Pelagidis, T., & Desli, E. (2004). Deficits, Growth, and the Current Slowdown: What Role for Fiscal Policy? Journal of Post Keynesian Economics, 26(3), 461–469.
[66] Reinhart, C. ., Reinhart, V. ., & Rogoff, K. S. (2012). Public Debt Overhangs: Advanced-Economy Episodes since 1800. Journal of Economic Perspectives, 26(3), 69–86.
[67] Ribaj, A., & Mexhuani, F. (2021). The impact of savings on economic growth in a developing country (the case of Kosovo). Journal of Innovation and Entrepreneurship, 10(1), 1–13.
[68] Salma, S., Idriss, E. A., & Said, T. (2016). Threshold effects of fiscal policy on economic growth in developing countries. Journal of Economic & Financial Studies, 4(03), 24.
[69] Sieroń, A. (2019). Endogenous Versus Exogenous Money: Does The Debate Really Matter? Research in Economics, 73(4), 329–338.
[70] Straub, S., & Terada-hagiwara, A. (2010). ADB Economics Working Paper Series Infrastructure and Growth in Developing Asia. In ADB Economics Working Paper Series (Issue 186).
[71] Sumner, S., & Horan, P. (2019). How Reliable Is Modern Monetary Theory as a Guide to Policy? March.
[72] Suparman, N., Islam, U., Sunan, N., & Djati, G. (2021). Indonesian Treasury Review. Jurnal Perbendaharaan, Keuangan Negara Dan Kebijakan Publik, 6(1), 31–42.
[73] Thuy, N. T. (2018). Fiscal Sustainability in Some ASEAN Countries : Evidence from a Panel Data Analysis. 1–40.
[74] Tokunaga, J. (2020). Monetizing Public Debt in Japan :
[75] Tung, L. T. (2018). The Effect of Fiscal Deficit on Economic Growth in an Emerging Economy: Evidence from Vietnam. Journal of International Studies, 11(3), 191–203.
[76] Tymoigne, E. (2021). Seven Replies to the Critiques of Modern Money Theory (Issue 996).
[77] Tymoigne, E., & Wray, L. R. (2013). Modern Money Theory 101: A Reply to Critics. SSRN Electronic Journal.
[78] Tymoigne, É., & Wray, L. R. (2013). Modern Money Theory 101: A Reply to Critics. In SSRN Electronic Journal (Issue 778).
[79] Van, V. B., & Sudhipongpracha, T. (2015). Exploring Government Budget Deficit and Economic Growth: Evidence from Vietnam’s Economic Miracle. Asian Affairs: An American Review, 42(3), 127–148.
[80] Vernengo, M., & Caldentey, E. P. (2019). Modern Money Theory (MMT) in the Tropics: Functional Finance in Developing Countries. 495.
[81] Walsh, C. E. (2010). Monetary Theory. In Land Economics (Vol. 24, Issue 2).
[82] Wardhono, A., Nasir, M. A., Qori’ah, C. G., & Indrawati, Y. (2021). Movement of inflation and new Keynesian Phillips curve in ASEAN. Economies, 9(1).
[83] Wardhono, A., Qori’ah, C. G., Nasir, M. A., & Aprilia, A. (2020). Analisis Dampak Indikator Makroekonomi terhadap Investasi Portofolio di ASEAN 4. Jurnal Ekonomi Indonesia, 9(1), 81–97.
[84] Wardhono, A., Qori’ah, C., & Wulandari, C. D. A. (2015). Fiscal Sustainability Study On Macroeconomic Variables In Indonesia : VAR Analysis. Jurnal Ekonomi Kuantitatif Terapan, 8, 113–121.
[85] Wray, L. R. (1998). Understanding Modern Money : The Key to Full Employment and Price Stability. Edward Elgar.
[86] Wray, L. R. (2019). Alternative Paths to Modern Money Theory. Real-World Economics Review, 89.
[87] Xing, Y. (2019). Do Japanese Economic Puzzles Validate Modern Monetary Theory? East Asian Policy, 11(04), 98–107.
[88] Zorn, N. (2016). The Post-Keynesian Approach, A Relevant and Necessary Alternative (Issue May).

Keywords:

Fiscal Deficit; Money Endogeneity: Taxes; Modern Monetary Theory.