Impact of Fiscal Policy on Economic Growth: A Comparison between Singapore and Sri Lanka

Abstract

The purpose of this paper is to examine the long-term impacts of fiscal variables on economic growth in Singapore and Sri Lanka from 1972 to 2017. Autoregressive Distributed Lag (ARDL)-ECM approach and some diagnostic and specification tests were employed to determine the impact of fiscal variables on economic growth on time series data. The results confirm that government expenditure, government revenue and investment expenditure positively and significantly affect in Singapore as well as Sri Lanka’s economic growth in the long run. This result is consistence with the theory of Keynesian views. Moreover, the Toda-Yamamoto’s Granger causality results reveal that there is bidirectional causality between inflation rate and economic growth in Singapore. Further, the results show that bidirectional causality relationship between investment expenditure and economic growth in Sri Lanka. Grounded on the premises that there are little or no studies on the impact of fiscal variables on Singapore and Sri Lankan economy with more recent data., this paper provides new evidence on the potential effect of fiscal variables on Singapore’s and Sri Lankan economic growth over the last four decades.