Fiscal Policy on Economic Growth: Endogenous Models from Sri Lanka
This paper aims to examine the role of fiscal policy on economic growth applying the endogenous growth models for Sri Lanka from 1960 to 2007. The empirical results suggest that indirect tax along with private and government investment have strong positive association with economic growth, consistent with the empirical growth literature. On the other hand, non-tax revenues and budget deficit contribute negatively to growth in Sri Lanka. The main policy inference from the study is that the Sri Lankan policy makers need to direct her fiscal policy towards increasing investment and indirect taxes, and to reduce the reliance on non-tax revenues.
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