Does there exist an optimal budget balance to improve economic growth? empirical evidence from Asian countries

Abstract Using panel data regression of 48 countries during 2000–2019, the research aims to examine the role of budget balance on economic growth in Asia. Also, with the application of Panel Threshold Regression (PTR), the author tests the nonlinear relationship and to identify an optimal budget balance threshold to achieve the most effective economic growth. The study shows that the lower national budget deficit level is remained, the greater economic growth in Asia is driven. Additionally, it is revealed that an effective economic growth is best promoted with budget balance ranging from 22.6935% GDP to 25.1950% GDP. However, only a few of nations in the sample have achieved the optimal threshold of budget balance above during the period of research. Meanwhile, several countries in Asia have been suffering from the budget deficit for many years. Therefore, in order to stabilize the economic development, most of the Asian countries should adjust the national budget revenue and expenditure process to keep the balance properly.


Introduction
Government budget is a material condition used to perform the national functions and tasks. At the same time, it acts as a tool of fiscal policy to regulate the macro-economy of many countries. Various debates on the impact of budget balance on countries' economic growth have been mentioned in previous researches during the development of economic theories. Barro (1989) pioneering in proposing the endogenous growth model indicates that budget expense has a significant impact on economic growth. Since then, a lot of domestic and international authors have found the relation between budget deficit and economic growth, but the empirical results are still controversial.
Stemming from December 2019, the COVID-19 pandemic has negatively affected the entire worldwide economies in general and particularly Asian countries. Ejiogu et al. (2020), Upadhaya et al. (2020), and Vaccaro et al. (2020) study the government's activities to balance budget and to determine economic and social impacts of budget balance in response to COVID-19 pandemic in many countries with an attempt to balance the government budget by increasing debt to finance economic and social interventions incurred during the pandemic in many countries. Worldwide countries have rapidly implemented epidemic prevention measures: increasing spending on health care activities, environmental sanitation, disinfection, masks and hand sanitizers production to well serve the current people's needs and epidemic control activities, and greater expense on social security to ensure people's lives during the pandemic. Due to the COVID-19 pandemic, dramatical restraints on production activities have been imposed, resulting in an increase in government budget deficit. According to the data of Asian Development Bank (2021), budget imbalance occurs when a government spends more than revenues in developing Asian countries due to impact of coronavirus disease. Specifically, some countries in Central and West Asia present government finance with negative fiscal balance in 2020 such as Afghanistan (−2.5% of GDP), Armenia (−5.4% of GDP), Azerbaijan (−2.4% of GDP), Georgia (−9.3% of GDP), Kazakhstan (−4% of GDP), Pakistan (−9.1% of GDP). It is implied that ineffective distribution of government budget has an impact on the country's resources for economic development. Therefore, it is such an urgent task to study the role of budget balance on economic growth in the context of COVID-19 pandemic to ensure the country's economic growth contributing to a stable macroeconomy, especially in Asian nations.
According to Figure 1, it can be seen that the fluctuations of the budget balance and economic growth are in the same direction. However, the level of budget balance increases gradually while there is an opposite tendency in GDP growth rate from the year of 2016 to 2019. Moreover, there exist some Asian countries having positive average real GDP growth rate with long-term deficit budget from 2000 to 2019 such as: Vietnam (−2.64% GDP), Turkmenistan (−6.94% GDP), Myanmar (−0.55% GDP), Japan (−7.70% GDP), China (−4.05% GDP), United Arab Emirates (−6.74% GDP). Therefore, an impact of budget balance on economic growth in Asia needs to be studied as well as whether the government should remain a suitable level of national budget balance to improve the economy. In general, the main objective of this paper is to study the impact of budget balance on economic growth in Asian countries and determine the budget balance threshold towards sustainable economic growth in Asia.

Definition of budget balance
Balanced budget is a concept derived from the budget management process to regulate a country's economy. Originated from the meaning of a country's "purse" or "wallet" (Adams, 1998) that related to the government's financial affairs, "Government budget" reflects cash inflows and outflows of a country over a specific period, usually a financial year (Smith & Lynch, 2004). For this reason, budget figures are always associated with socio-economic goals and continuously fluctuated at different times, representing a country's financial resources. According to Morgan (1997), budget plays an important role in the economy because it allows managers to have a thorough grasp of the financial situation to implement solutions in accordance with changes of the macro environment. Gupta (2007) believed that government budget always exists in three financial states of surplus, deficit or balance. The negative difference in total revenue minus total expenditure is called budget deficit while the positive one is called budget surplus. A budget deficit arises when government spending exceeds revenues. In contrast, a budget surplus occurs when revenues exceed government expenditures. Budget balance is the state that shows total revenues equals total expenditures. Therefore, the term "budget balance" is referred to the Government's budget management process which aims to balance a country's revenue and expenditure. In case of budget deficit, the exceeding spending should be less than the expenditure on development investment. When the budget is in surplus, revenue can be used to pay the principal and interest of Government to reach revenue-expenditure equilibrium.
In summary, the definition of budget balance reflects the correlation between budget income and expenditure in a fiscal year, measured by the difference between total Government budget's revenue and expense. In this research, the budget balance means the difference between government revenues and expenditures which presents the outcome of budget management of a country.

The nexus of budget balance-economic growth
Previously, many economic scholars have mentioned the relation between budget regulation and economic growth. Typically, it is supposed by Keynesian economic theory that Government expenditure will stimulate economic growth. Thus, budget deficit has a positive effect on growth rate through an increase in domestic production and private investment (Frank & Bernanke, 2001). On the contrary, the Neoclassical theory argues that budget deficit has a negative impact on the economy as an increase in consumption certainly means a decrease in savings. Afterward, interest rates will be raised to equalize capital markets. Undoubtedly, a prolonged deficit outweighs private capital accumulation results in adverse effects on the economy (Bernheim, 1989). On the other hands, with a belief that present budget deficit will be offset by an increase in future tax revenue, Ricardian learns that the budget deficit does not affect any macroeconomic variables or any individual's interest in the economy (Williamson, 2005). Though the impact of budget balance on economic growth has been a concern and developed in economic theories, controversial arguments remain depending on different theoretical points of view.
According to relating empirical studies, some authors affirm that the nexus between budget balance on economic growth is positive. Collecting data of 39 low-income countries during 1990-2000, Gupta et al. (2005) pointed out that budget deficit due to expenditure on salary dramatically reduces a country's economic growth. A negative impact of budget deficit on economic growth is the finding of Fatima et al. (2012) in Pakistan during 1978Pakistan during -2009. Similarly, a negative correlation between budget deficit and economic growth in MENA countries in the period of 2000-2013 is pointed out by Arjomand et al. (2016). Considering the influence of budget deficit on economic growth in 20 Asian countries, Amgain and Dhakal (2017) concluded that fiscal deficit adversely affects growth in both short and long run. Besides, long-term debt accumulation due to budget deficit is also negatively related to growth.
On the contrary, some studies indicate that budget deficit might improve economic growth of a country. That means there is a negative impact of budget balance on economic growth in the results of previous researches. Using OLS regression method to study the effects of budget deficit and interest rate on economic growth of countries in Eastern territories of Africa in the period of 2004-2013, Magehema (2015) showed that budget deficit has a positive impact on economic growth. Upon the impact of budget deficit on economic stability in Nigeria during 1970-2013, Eze and Ogiji (2016)  However, the nonlinear relationship as well as the result of no relation between budget management and economic growth are indicated in some studies. Additionally, Adam and Bevan (2005) examined the relation between fiscal deficit and economic growth of 45 developing countries in 1970-1999 period. By using panel data regression method with the fixed effects model, the authors built a model using a variable of budget deficit threshold affecting economic growth. This study revealed an evidence of the threshold effects on economic growth at deficit level of approximately 1.5% of GDP. For OECD countries, Minea and Villieu (2008) conducted a study to determine whether fiscal deficit has a nonlinear effect on growth dependent on the ratio of public debt to GDP. The study indicates that an increase in budget deficit in economies with low debt and a reduction in growth in high-debt countries. Nevertheless, using quarterly data from 2000 to 2011, Abd Rahman (2012) found no long-term relation between the budget deficit and economic growth in Malaysia.
Applying a combination of research methods of OLS and Spline regression in the Vector Error Correction Model (VECM) on quarterly data from 2000 to 2012, Akosah (2013) aimed to determine the budget deficit threshold effect on economic growth in Ghana and learns that short-term budget deficit promotes economic growth, but exceeding deficit over the threshold of 4% of GDP is harmful to economic growth. With Threshold Auto Regression (TAR) model on time series data, Onwioduokit and Bassey (2014)  In general, the author' statistics show inconsistent results of previous studies on the relation between budget balance and economic growth. By different research methodologies, some figure out a positive impact of budget deficit on economic growth economic while the others conclude the opposite influence; no relation between the above factors or a nonlinear relationship between budget balance and economic growth also exists. Moreover, common techniques of Pooled, FEM, REM and GMM for panel data and VECM, ARDL for time series data are applied in numerous studies on the impact of budget balance on economic growth in Asian and worldwide developing countries. Threshold Regression model is also used to test the nonlinear relation between budget balance and economic growth of countries.
In conclusion, in the context of many countries in Asia are affected by Covid-19 epidemic, it is deniable that researching the nexus of budget balance-economic growth-is necessary to affirm the threshold of budget balance in order to improve the development of Asian economy.

Research methodology
Considering scientific gaps in previous researches, the author uses the regression method with static panel data to examine the effect of budget balance on economic growth of Asian countries from 2000 to 2019. Next, the nonlinear relationship between budget balance and economic growth is tested through the static Panel Threshold Regression (PTR) model proposed by Hansen (1999). Thereby, the researcher evaluates the role of budget balance in economic growth in Asian countries.
According to classical theoretical models, the capital and labor source are primary factors affecting economic growth. Besides, based on Neoclassical theory and inherited from previous studies of Onwioduokit and Bassey (2014); Slimani (2016); Salma et al. (2016); Tung (2018); Bhari et al. (2020), the paper builds a research model of the impact of budget balance on economic growth as follows: In which, i = 1, 2,., n; t = 1, 2, . . ., t (i is the country and t is observation time in the model) is a country's fixed effect and errors are similarly and independently distributed ≈ i.i.d (0, бe2).
Similar to Onwioduokit and Bassey (2014); Slimani (2016); Salma et al. (2016) with the application of Hansen's (1999) threshold regression theory, the author uses the threshold regression model to test whether there is a nonlinear relationship between budget balance and economic development in Asian countries. The regression model of the threshold impact of the budget on economic growth is demonstrated as follows: Where: i = 1, 2,., n; t = 1, 2, . . ., t (i is the country and t is the observation time in the model) The dependent variable is economic growth (gdp it ); The threshold variable is the independent variable of budget balance ðbd it ); γ is the estimated value of threshold; control variables (X it ): government expenditure (ge); national savings (ns); total investment capital (inv); inflation (inf); labor (labo); trade openness; exchange rate (exch); interest rate (rate); money supply (m2). All the variables and measurements of them are indicated in Table 1. According to Table 2, the maximum level of real GDP is 34.46621% but the minimum GDP growth rate is −33.1008 (%) in the sample. However, the average level of GDP growth rate of 48 nations in Asia during 20 years from 2000 to 2019 is about 5.14%. About fiscal management, Asian nations remain the level of budget balance is about 8.92% GDP in average. Nevertheless, the level of budget balance is −11.6767% GDP in minimum and the maximum level is 256.3858% GDP.

Unit root test and cointegration test
Before examining the impact of budget balance on economic growth in the research model, the author checks the stationary of variables through the Im-Pesaran-Shin unit root test. The testing results are shown in Table 3: The results from Table 3 showed that all variables are stationary as a result of p-value smaller than 0.1. Therefore, all variables in research model have been continued to examine the impact of budget balance on economic growth in Asia.

The effect of budget balance on economic growth of countries in Asia
Firstly, the paper uses regression model techniques (1) Table 4). Following that, a relatively small p-value resulted from the F-test draws to conclusion that FEM is a better option, compared to Pooled-OLS. As p-value is less than 1% in the Breush-Pagan test, REM seems to be more appropriate than the model of Pooled-OLS. With the p-value less than 1% significance level from the Hausman test, Fixed Effects Model is the best decision despite the existence of variable variance and autocorrelation from the disability test.
Undoubtedly, the article has prioritized using the FEM and FGLS estimation method for the improvement of estimation efficiency (Gujarati & Porter, 2009). Regression model and testing results (1) are summarized in Table 4 as follows: As shown in Table 4, budget balance (bd) has a positive effect on economic growth (gdp) in Asian countries, meaning that economic growth in Asian countries will be boosted as national budget balance decreases the level of deficits, gradually moves to equilibrium or remains a higher level of surplus. That is consistent with the neoclassical theory and previous experimental studies of Onwioduokit and Bassey (2014); Slimani (2016); Salma et al. (2016); Tung (2018); Bhari et al. (2020). In addition, economic growth is also affected by government expenditure (ge); labor (labo); inflation (inf) and money supply (m2).

Estimated budget balance threshold
By estimating the threshold regression model of Hansen (1999) with the bootstrap loop method, the author tests the existence of single and double thresholds and concludes that the double threshold effect exists because the result of p-value at 0.0533 is less than the significance level of 10%.
The results of the threshold regression model (2) summarized in Table 5 indicate that the threshold value of the budget balance is 22.6935% GDP and 25.1950% GDP with accuracy of 95%. Additionally, budget balance is less than or equals to the range of 22.6935-25.1950% of GDP; the estimated coefficient β 1 is 0.3600114 and statistically significant at 1%, contributing to the     argument that growth rate will increase by approximately 36% when budget balance is improved towards the state of surplus with the rate greater than 22.6935% of GDP, and less than or equal to 25.1950% of GDP. When the budget balance is out of range, either less than or equal to 22.6935% of GDP or greater than 25.1950% of GDP, an increase in efficiency of budget balance management does not contribute to improving the economic growth rate due to the corresponding estimated coefficients β 0 and β 2 are not statistically significant.
To attain reliable empirical results, the article retests the above using dummy variable (exam_1). For observations with budget balance values within the threshold range of 22.6935% GDP-25.1950% GDP, the dummy variable equals 1. For those that are out of the range, the dummy variable exam_1 is 0.
With similar regression techniques applied to model (1), the estimation results in Table 6 indicate differences in economic growth among observations with budget balance value within satisfying the threshold range are impacted in a way that economic growth is better driven compared to those with out-of-range budget balance. The above outcome further reinforces the conclusion of the existence of budget balance threshold for economic growth in Asia. Table 7 shows very low percentage of Asian countries that satisfies the range of budget balance threshold from 22.6935% GDP to 25.1950% GDP during 2000-2019.
As can be seen from Table 7, there are about 90% of Asian nations having budget balance less than 22.6935% GDP. Many countries have long-term budget deficit during a researched period such as: United Arab Emirates, China, Japan, Myanmar, Turkmenistan, Vietnam. On the other hand, there are about 8-10% of Asian countries remaining the high level of surplus in budget management which is more than 25.1950% GDP. However, these figures are not an optimal budget balance to enhance the economic growth rate in Asia. During the mentioned research period, only about 2% to 4% of Asian countries have the threshold budget balance from 22.6935% GDP to 25.1950% GDP which might seem to improve the economy. Specifically, Azerbaijan only had the optimal threshold of budget balance from the year 2002 to 2007 while the figure of Kuwait and Macao were remained from 22.6935% GDP to 25.1950% GDP in 200325.1950% GDP in -200425.1950% GDP in and 200825.1950% GDP in -2009. Meanwhile, the level of budget balance of Mongolia and Saudi Arabia in the researched threshold has only happened in one year during the long period from 2000 to 2019.

Conclusion and discussion
With the results of panel data regression, the study has proven a positive relation between budget balance and economic growth in Asian countries from 2000 to 2019. The research also strengthens the belief that a reduction of Government budget deficit will help Asian countries to improve economic growth, especially when government budget is vulnerable to deficit due to high expenditure as well as poor revenue during the complicated COVID-19 epidemic.
In addition, the paper also examines the nonlinear relationship between budget balance and economic growth during the research period in Asia. The test results indicate the existence of budget balance threshold related to economic growth. In details, when government budget in surplus within the range of 22.6935-25.1950% of GDP, its impact drives economic growth to the highest, at 36%. During the research period, poor budget management that fails to support economic growth in Asian countries is another finding of the study. It is critically important for Asian countries to overcome prolonged budget deficit and maintain the country's budget balance within 22.6935-25.1950% of GDP threshold, which contributes to the best driven economic growth.
Besides, some interesting policy implications might be analyzed in order to improve economic development through managing the government budget. First, a prompt reduction of spending in managing administration and improving the performance is highly recommended to save recurrent expenditures and to decrease Government spending rate in some Asian countries having high rate of budget deficit. For examples, instead of spending money on organizing typical gatherings which are restricted in the context of the complicated COVID-19 epidemic, the Government can better make use of these expenses for the pandemic's prevention activities, ensuring that Government budget is balanced. Second, many countries should reform strongly in tax policy, entail a far more robust tax system to reduce the burden of taxes. Therefore, stable and equitable sources of earnings are recommended in the context that the COVID-19 epidemic seriously affects production and business activities of various entities.
Nevertheless, the framework of this study did not base on the modern growth theory, therefore, the variables presenting institutional quality of countries were not mentioned in the research model. In further researches, some factors relating to institutions might be added to the model to examine the effects on economic growth beside other variables of the classical economic theory.