Purpose The purpose of this paper is to investigate the problem of fiscal sustainability for a panel of developing Asian economies. Design/methodology/approach In this study, cross-section dependence and heterogeneity are controlled while estimating the fiscal reaction function, which shows how governments react to the accumulation of public debt. The study employs the common correlated effects mean group estimator in Pesaran (2006) for a panel of 22 developing Asian economies for the period 1999‒2017. Findings It is found that the fiscal sustainability issue in the region is not so benign as in previous studies. Overall, fiscal policy is unsustainable, even for the nonlinear fiscal rule. Country-specific long-run coefficients are also examined in the study. Research limitations/implications The findings show that many developing economies in the region could not satisfy the intertemporal budget constraint, which raises concerns about debt sustainability in the area, especially for the post-crisis period. Originality/value This study investigates whether governments can maintain the sustainability of public finances in the long-run, if the ratios of public debt over GDP and primary deficit over GDP continue their recent problematic trends. Another novelty is controlling for heterogeneous effects among the countries in the region to give a more precise picture of debt sustainability. The empirical evidence also supports that insolvency risk can occur at low levels of public debt.

Purpose – The purpose of this paper is to examine the impacts of fiscal policy, namely, net tax and government expenditure on national saving and its nonlinearity. The author first investigates whether the impacts of fiscal policy on national saving have changed after the global financial crisis of 2008. Then, the author tests the nonlinearity of the relationship by taking account of the economic cycle, namely, economic expansion (boom) and economic recession (bust). Design/methodology/approach – The empirical model bases on a reduced-form equation with national saving as a dependent variable, lagged value of national saving, output gap and fiscal policy as independent variables. The two-step system GMM approach was employed to estimate the empirical model, using a panel of 23 emerging Asian economies in the period of 1990-2015. Findings – The empirical results show that tax policy and expenditure policy follow the predictions of the overlapping generation model with finite horizon and the Keynesian view. The nonlinearity of fiscal policy is twofold. The conduct of fiscal policy in the period after 2008 seems effective, while the effect is insignificant in the period before 2008. Likewise, fiscal policy tends to have more significant effects in bust cycle. The effect of tax policy is increased during recession, while the effect of government spending is more pronounced during economic downturn. Originality/value – The contributions of this paper are twofold. First, it is shown that fiscal policies in the region had more impacts on national saving after the global financial crisis of 2008. Second, the research confirms nonlinear impact of fiscal policy on saving behavior during economic recession and economic boom.

Purpose – The effectiveness of fiscal policy is an interesting field in literature of macroeconomics. The purpose of this paper is to investigate the effects of fiscal policy on economic growth under contributions from the differences in institutions and external debt levels. Design/methodology/approach – The authors use panel data from 2002 to 2014 from 20 emerging markets and use GMM estimators for unbalanced panel data. Findings – The results show positive growth effects of fiscal policy across emerging markets in the examined periods. Notably, the improvement in institutions promotes higher crowding-in effects of fiscal policy. In addition, this paper finds interesting evidences that the external debt has non-linear effects on economic growth, whereas the heterogeneous effects of fiscal policy on economic growth as positive effects in low indebted level and negative effect in high indebted level may explain the mechanism of this non-linear relationship. Originality/value – This study proposes the non-linear relationship of fiscal growth effects in emerging economies under the dynamic of debt levels.