Public finance and economic development

This paper reports on tests of alternative hypotheses as to the effects of a budget deficit, examines the influence of the size of the government on economic growth, and investigates the impact of public investment on private investment, total investment, and economic growth. The findings have important implications for the developing countries. They show that budget deficits have adverse effects on the balance of payments as well as on domestic investment. It further appears that increases in government consumption adversely affect economic growth. Finally, increases in public investment not only crowd out private investment but tend to lower the efficiency of investment, with adverse effects on economic growth. The conclusions point to the need for reducing budget deficits in developing countries. They further favor lowering government consumption as well as public investment in these countries.Economic Stabilization,Economic Theory&Research,Environmental Economics&Policies,Macroeconomic Management,Achieving Shared Growth