Non-homothetic preferences, optimal public finance policy, and structural transformation

This study uses a comparative perspective to investigate how fiscal policies and budgetary mechanisms influence structural economic changes. By constructing a theoretical model rooted in the government’s non-homothetic preferences, we analyze how fiscal variables such as the tax burden, public deficit, and debt levels asymmetrically impact both intensive and extensive economic transformations across various regional settings. Our empirical study, leveraging panel data over time period ranging from 2010 to 2022, identifies region-specific fiscal thresholds that define optimal ranges for these budgetary tools. The results highlight distinct patterns in the fiscal impact across regions as well as the institutional frameworks shaping the relationship between budgetary factors and structural transformation outcomes.