Asymmetric Growth Impact of Fiscal Policy: Evidence from Egypt

Abstract

This paper empirically explores how fiscal policy - represented by changes in government spending- exerts asymmetric effects on economic growth in the context of a developing country, Egypt in particular. By allowing for the theoretical plausibility of asymmetric effects of fiscal policy on economic activity, our research suggests that nothing can guarantee linearity between the growth impact of increasing and decreasing government expenditures. Using a non-linear ARDL model on Egypt data - at both aggregated and disaggregated levels- for the period 1980-2013, this paper provides new evidence of a non-linear relationship between government spending and economic growth.

Keywords: fiscal policy, economic development, non-linear ARDL, Egypt

JEL Classification: E6, O1