Issue #2 (Volume 15 2026)

Type of the article: Research Article

Abstract
Regional transfers are a key instrument of regional fiscal policy that promote balanced development and reduce disparities across districts, yet the behavioral responses of local governments to these inflows remain insufficiently understood. This study examines how regional transfer fund allocations influence government expenditure, unemployment, infrastructure development, and regional revenue in West Sumatra using quarterly data for 2014–2024. A Bayesian Vector Autoregressive framework is employed to address small-sample limitations and to capture the dynamic responses to transfer shocks. The results show that increases in regional transfers have limited, short-lived effects on unemployment, while capital expenditure on basic infrastructure declines, indicating potential crowding-out of certain government spending categories. At the same time, regional revenue responds positively, suggesting that transfers can support local fiscal capacity in the short term. These findings highlight that, although regional transfers can facilitate immediate fiscal stabilization, they may hinder long-term infrastructure investment unless accompanied by performance-based fiscal mechanisms. Improving transfer design and accountability is therefore essential to ensure that fiscal resources promote sustainable development outcomes.

Acknowledgments
This research is a grant from the Ministry of Higher Education, Science, and Technology of the Republic of Indonesia under the Impactful Leading Consortium Research Scheme (RIKUB Scheme) in accordance with research contract number 008/C3/DT.05.00/RIKUB/2025.

Type of the article: Research Article

Abstract
This study assesses the impact of debt overhang on Nigeria's public investment and economic growth. The paper utilized the Autoregressive Distributed Lag (ARDL) with annual time-series data from 1981 to 2024 and Myers' debt overhang, fiscal sustainability, and crowding-out effect theories. Public investment growth and economic growth rate were dependent variables, while debt overhang was independent. The control variables included interest rate, exchange rate, and inflation rate. The two models demonstrated a long-term cointegration connection. The results demonstrate a paradox which has practical implications because debt overhang produces statistically significant effects which show opposite results through its impact on both dependent variables.. Specifically, a unit increase in debt overhang is associated with a 0.744-unit increase in public investment (β = 0.744, p < 0.05) and a 0.153-unit decrease in economic growth (β = –0.153, p < 0.05). The findings support the efficiency trap hypothesis by determining that debt accumulation leads to increased investment but does not produce matching economic growth due to inefficient resource allocation in debt financing. In the short run, debt overhang negatively affects both variables, with the error correction term confirming rapid adjustment to equilibrium. Therefore, Nigeria is operating in an “efficiency trap.” The debt used to finance investment does not translate into economic growth due to poor project selection, resource misallocation, and inefficient project implementation. The null hypotheses for both models were of no significant effect and were rejected. We recommend that policymakers prioritize project appraisal methods and ensure that borrowed funds are directed toward quality investments.

Type of the article: Research Article

Abstract
Income inequality remains a major challenge for inclusive development, particularly in emerging economies where fiscal policy plays a central role in redistributing income opportunities. This study examines how public education expenditure affects income inequality across Vietnam’s 63 provinces over the period 2011–2024 and whether institutional quality moderates this relationship under spatial dependence. Using panel and spatial econometric approaches, with the Spatial Durbin Model (SDM) as the primary specification, the analysis captures both within-province effects and interprovincial spillovers. The results show that public education expenditure is positively associated with income inequality in the short- to medium-term. A 1% increase in education spending raises the Gini coefficient by approximately 0.067-0.157 percentage points within provinces, with larger spillover effects observed across neighboring provinces. However, institutional quality significantly mitigates this effect. Interaction variables based on the Provincial Competitiveness Index (PCI) and the Public Administration Performance Index (PAPI) are negative and statistically significant, indicating that stronger institutional quality dampens the inequality-increasing effect of education expenditure. The findings also confirm that spatial dependence is pronounced, and education spending generates meaningful spillovers, indicating that inequality outcomes in one province are partly shaped by spending patterns in neighboring provinces. Overall, the findings suggest that expanding education budgets alone is unlikely to deliver equitable outcomes without parallel reforms that strengthen transparency, accountability, and performance-based allocation, alongside regional coordination to manage spatial externalities.

Acknowledgments
This study is funded by the University of Economics Ho Chi Minh City (UEH), Vietnam.

Type of the article: Research Article

Abstract
This study develops DIGTAXEU, a conceptual model that elucidates the primary determinants of digital economy taxation in the EU and their interrelationships. The model identifies nine dimensions, including the definition of the digital economy, profit shifting, jurisdictional scope, taxation of multinational enterprises, revenue thresholds, fair taxation, international agreements, political and economic diversity among Member States, and unilateral tax measures. The DIGTAXEU model was developed using interviews with four experts representing key institutions in international and European Union tax policy, including the OECD, the European Commission, and the Permanent Representations of Austria and Hungary to the European Union. The findings demonstrate that digital taxation in the EU is driven by the interplay of cross-border digital business models, fragmented national tax responses, and incomplete international coordination. Consequently, DIGTAXEU provides a structured analytical framework for understanding regulatory fragmentation and informing the development of a more coherent and equitable EU digital tax architecture. The identified dimensions function in a mutually dependent manner, shaping the consistency and overall effectiveness of digital tax policy. At the same time, disparities among national tax measures, together with the absence of comprehensive international harmonization, continue to hinder the development of a unified digital taxation framework.

Acknowledgment
Funded by the European Union – NextGenerationEU: Incentives towards the optimization of digital tax policies and responsibilities in the EU (DIGTAXEU) IP-UNIZD 2025–2029. The views and opinions expressed are those of the authors only and do not necessarily reflect the official views of the European Union or the European Commission. Neither the European Union nor the European Commission can be held responsible for them.

Type of the article: Research Article

Abstract
The COVID-19 pandemic represented a systemic shock to public finances in the European Union, as governments simultaneously faced revenue disruptions, expenditure pressures, and rapid debt accumulation. This study aims to identify and quantify the impact of the pandemic on public finances in European Union Member States and to assess fiscal resilience and long-term sustainability using the Public Finance Triangle, with particular emphasis on how stabilization policies affected its geometric area. The analysis is based on annual Eurostat data for all EU-27 countries covering the period 2011–2021. Year-on-year changes in public revenues, public expenditures, and public debt are integrated into a synthetic geometric indicator that captures their joint fiscal dynamics. The results show that in 2020, the average triangle area at the EU level declined from 14,518 units, representing the 2011–2019 average, to 12,777 units, which corresponds to a decrease of 11.99%. The strongest contractions were recorded in Estonia (−52.43%), Malta (−23.46%), and Lithuania (−22.45%), while the smallest declines were observed in Finland (−9.58%) and Sweden (−10.32%). In 2021, the average triangle area increased to 14,847 units, exceeding the pre-pandemic benchmark by 2.27%, and 20 out of 27 Member States surpassed their long-term averages. The strongest recoveries were observed in Cyprus (+14.34%) and Lithuania (+11.15%), with recovery driven primarily by public revenue dynamics. The findings confirm a universal deterioration of fiscal resilience in 2020 followed by a heterogeneous recovery in 2021, and provide policy-relevant implications for strengthening revenue capacity and ensuring sustainable debt management under future systemic shocks.

Acknowledgment
This paper has been supported by project VEGA 1/0265/25.

Type of the article: Research Article

Abstract
This study investigates the impact of tax authority services, awareness, and tax sanctions on MSMEs’ tax compliance, with e-filing as a moderating variable. The study is inspired by the low level of tax compliance among MSMEs in emerging economies. A quantitative analysis was conducted using the PLS-SEM approach. Data were collected between January and March 2025 through a questionnaire administered to 100 MSME taxpayers, who were either firm owners or financial managers registered with local tax offices in Indonesia. The results indicate that taxpayer awareness has a positive effect on taxpayer compliance (β = 0.169; p < 0.05), while tax authority services show a negative effect (β = –0.189; p < 0.05). Tax sanctions had no effect on compliance (β = –0.081; p > 0.05). Furthermore, e-filing moderates the relationship between taxpayer awareness and compliance (β = 0.214; p < 0.05), but it does not moderate the effects of tax authority services and tax sanctions. The model explains 13.3% of the variance in taxpayer compliance (R² = 0.133), indicating that additional factors may influence compliance behavior. These findings highlight the importance of integrating taxpayer education with digital tax systems to enhance voluntary compliance. The study suggests that improving awareness, supported by accessible technology, is more effective than relying solely on service quality or sanctions in regional MSME contexts.

Acknowledgment
We would like to thank Universitas Jambi for the funding support of research schemes with Rector Decree of Universitas Jambi Number 1654/UN21/PT/2024 dated June 12, 2024, and Agreement/Contract Letter Number 74/UN21.11/PT.01.05/SPK/2024, dated June 14, 2024.

Type of the article: Research Article

Abstract
The purpose of this study is to analyze the effects generated by military spending in Iraq during the pre- and post-ISIS periods, covering the years from 2004 to 2024. The study focuses on the real and monetary implications of military expenditure by identifying the impact and direction of changes in military spending on a set of selected variables. The statistical bulletins of the Central Bank of Iraq and reports of the Iraqi Ministry of Finance were analyzed. Regression analysis and confirmatory factor analysis (CFA) using Amos 22.0 were adopted. All the study hypotheses were assessed, and all relationships were significant, as it became clear that military spending has a positive impact on the monetary base (+0.74), market value of the Iraqi stock market (+0.73), and credit provided to the government (+0.68), meaning that there is a direct relationship. Moreover, the study found a negative impact on the inflation rate (–0.64), number of victims (–0.24), economic growth (–0.26), and assets of commercial banks (–0.47), revealing an inverse relationship between the studied variables and military spending. The central conclusion of the study is that military spending in Iraq, given its growing significance over the past decades and its continued presence in federal government budgets, has become a factor influencing many economic indicators.

Type of the article: Research Article

Abstract
Public debt has emerged as a critical macroeconomic issue in many Asian economies, where persistent trade imbalances and inflation volatility continue to exacerbate fiscal pressures. A clear understanding of the causal mechanisms linking these factors to public debt is therefore essential for effective fiscal and monetary policymaking. This study examines the causal effects of trade deficits and inflation on public debt using balanced panel data from 31 Asian countries over the period 2005–2022, where annual observations from all countries were combined into a pooled panel dataset for econometric estimation. To capture both long-run and short-run dynamics, the analysis employs the Autoregressive Distributed Lag (ARDL) model and the Cross-Sectionally Augmented ARDL (CS-ARDL) approach.
The empirical findings reveal that trade balance and inflation exert statistically significant long-run effects on public debt. Improvements in the trade balance are associated with a substantial reduction in public debt, while higher inflation is also linked to lower public debt levels in the long run. In the short run, changes in the trade balance do not have a significant impact, while inflation effects remain negative but statistically insignificant. The error correction term (–0.196) indicates a relatively rapid adjustment toward long-run equilibrium. Panel causality test results further reveal bidirectional relationships among public debt, trade balance, and inflation, implying mutual feedback effects. Overall, the findings highlight the importance of improving trade performance and maintaining stable inflation to support long-term debt sustainability in Asian economies.

Type of the article: Research Article

Abstract
This study examines the short-run and long-run relationship between fiscal deficit and economic growth in Uzbekistan over 2000–2025, with explicit attention to the structural reform dynamics introduced by the 2017 economic liberalization program. To achieve this aim, the Autoregressive Distributed Lag (ARDL) bounds testing approach is combined with the Zivot-Andrews endogenous structural break test. The bounds test confirms a stable cointegrating relationship (F = 8.947, exceeding the 1% upper bound), thereby fulfilling the study's aim of establishing a long-run equilibrium link between fiscal deficit and growth. The results show that the fiscal deficit exerts a positive and statistically significant effect on growth in both the short (β = 0.178) and the long run (β = 0.242): a one-percentage-point increase in the deficit raises long-run growth by about 0.24 percentage points. The 2017 reform dummy carries a significant negative coefficient (β = –6.196), quantifying the short-term adjustment cost of the transition, while the Zivot-Andrews test independently dates structural breaks in the exchange rate and domestic credit to 2017. Among the controls, domestic credit raises growth (β = 0.146), whereas inflation (β = –0.189) and exchange rate depreciation (β = –1.365) reduce it; the error-correction term (ω = –1.862) indicates rapid convergence to equilibrium. These findings confirm all research hypotheses and support the Keynesian view, while demonstrating that fiscal policy effectiveness in transition economies is conditional on accompanying structural reforms, macroeconomic stability, and financial development.

Type of the article: Research Article

Abstract
The study aims to assess changes in the influence of macroeconomic factors on government revenues and the transfor-mation of their interrelationships under wartime structural shocks in Ukraine. Two periods are considered: the first period (2017–2020) serves as the baseline for comparison, while the second period (2022–2025) captures the structural shifts associated with the full-scale war. The methodological framework combines correlation and regression analyses, supplemented by a pooled regression with a wartime dummy variable to assess structural differences between periods, and by logarithmic transformations of variables to enhance economic interpretability. The findings indicate a substantial transformation in the relationships between macroeconomic indicators and State Budget revenues within the relatively short wartime observation period (2022–2025). During the baseline period, the model shows limited explanatory power (R2 = 0.43) and no statistically significant coefficients, reflecting the distributed nature of factor influence. In the wartime period, the explanatory power of the model increases to R2 = 0.83; however, it is accompanied by a sharp rise in multicollinearity (VIF for GDP: 38.5; for imports: 22.3), limiting the identification of the individual contribution of explanatory variables and suggesting stronger co-movement among macroeconomic indicators. The logarithmic model suggests that GDP may serve as an aggregate indicator reflecting broader macroeconomic dynamics associated with State Budget revenues, while the elasticity of State Budget revenues with respect to GDP equals 1.4, indicating heightened fiscal sensitivity under crisis conditions. The results suggest that macroeconomic indicators exhibit a more coordinated pattern of interaction in explaining State Budget revenues, within which their interrelationships intensify and acquire a systemic character.

Type of the article: Research Article

Abstract
This study examines whether district-level public expenditures on education, health, and infrastructure enhance human development and reduce income inequality across 33 regencies/municipalities in North Sumatra Province, Indonesia. The study is situated within the context of fiscal decentralization, where local government spending is expected to improve basic service provision, yet substantial territorial disparities in welfare outcomes and fiscal capacity remain. Employed balanced panel data over the short 2021-2023 period, this study applies descriptive regional mapping, Hodrick–Prescott trend filtering, and panel regression models. Model selection is conducted using the Chow, Hausman, and Lagrange Multiplier tests. The trend analysis indicates positive associations between basic service expenditures and the Human Development Index (HDI), with infrastructure expenditure showing the strongest trend correlation, followed by health and education expenditures. However, the preferred random effects model reveals that education and infrastructure expenditures have positive but statistically insignificant effects on HDI, while health expenditure shows a negative and statistically insignificant coefficient. Poverty exerts a statistically significant negative effect on HDI, highlighting structural deprivation as a key constraint on human development. For income inequality, the preferred fixed effects model shows that infrastructure expenditure significantly reduces the Gini index, while GRDP per capita also has a significant inequality-reducing effect. These findings suggest that increasing public expenditure alone is insufficient to achieve inclusive development. Fiscal policy must therefore prioritize expenditure quality, spatial targeting, and implementation capacity to transform public budgets into equitable improvements in human development and income distribution.

Acknowledgments
The authors gratefully acknowledge funding support from the Scientific Publication Program of Universitas Sumatera Utara (USU), as well as institutional support that contributed to the completion of this research.