Quality of Public Finances and Growth

Michael Thöne, Antonio Afonso, Werner Ebert, Ludger Schuknecht

FiFo / February 2005 / Working Paper, European Central Bank (ECB)

Abstract
In this paper we review the linkages between the quality of public finances, that is, the
level and composition of public expenditure and its financing via revenue and deficits,
and economic growth. We review the various channels through which public finances
affect growth and its underlying determinants (institutional framework, employment,
savings and investment, innovation). The paper addresses the approaches used to assess
the performance and efficiency of public spending, and surveys the empirical findings on
the impact of fiscal variables on sustained economic growth.