Applied Economics Journal <p>Applied Economics Journal (ISSN: 2586-9124) is a double blind peer-reviewed journal devoted to the applications of economic theories, concepts and methodologies to analyze well-defined research issues. It encourages empirical analysis, simulation, prediction and forecasting research. While it is aimed at academics and policy makers interested in the Thai and Asian economies, the journal also considers articles that deal with global issues. The primary criteria for selecting papers are originality, quality, and contribution to the field. The categories of articles include commentary, review articles, research articles and book reviews. &nbsp;AEJ is indexed in the Thai-Journal Citation Index (TCI), IDEAS/RePEc, CAB Abstracts, Google Scholar, ASEAN Citation Index (ACI) and Emerging Sources Citation Index (ESCI). Two issues are published a year, in June and December. All articles are open access. No submission fee and page charge.</p> en-US <p style="text-align: justify;">Submission of a manuscript to Applied Economics Journal will be taken to imply that the author(s) guarantee that the paper is an original work, has not been published, and is not being considered for publication elsewhere either in printed or electronic form. The author(s) have obtained permission from the copyright holder to reproduce in the article material not owned by them, that author(s) have acknowledged the source, and that this article contains no violation of any existing copyright or other third party right or any material of an obscene, indecent, libelous or otherwise unlawful nature and that the article does not infringe the rights of others. The author(s) will indemnify and keep indemnified the editors and Applied Economics Journal, Center for Applied Economics Research (CAER), Faculty of Economics, Kasetsart University against all claims and expenses. The author(s) agree that the publisher may arrange for the article to be published and sold or distributed on its own, or with other related materials, and could reproduce and/or distribute in printed, electronic or any other medium whether now known or hereafter devised, in all languages, and to authorize third parties to do the same.</p> (Waleerat Suphannachart) (Waleerat Suphannachart) Wed, 28 Apr 2021 15:17:03 +0700 OJS 60 Editorial Note <p>This issue of <em>Applied Economics Journal</em> (AEJ) consists of six research papers and a review article covering a wide range of economic issues for both country groups and individual countries. The first paper applies both linear and non-linear approaches in determining the dynamic relationship between demography and direct taxes in OECD and non-OECD countries. The second paper investigates the impact of domestic borrowing together with FDI inflows and remittances on financial development of EU transition economies, using the cointegration and causality analysis. In the third paper, unit root tests with different approximations in modeling structural breaks are employed to investigate whether the ratio of military expenditures to GDP converged among NATO countries. The fourth paper uses the two-step generalized method of moments to empirically examine the effects of FDI, governance, and their interaction on income inequality for a panel of 37 developing countries. The fifth paper uses the autoregressive distributed lag (ARDL) and wavelet coherence techniques to reveal the validity of the environmental Kuznets curve (EKC) hypothesis in Indonesia. The sixth paper (written in Thai) applies behavioral economics frameworks to examine the effects of negative attitudes on Over-the-top (OTT) usage behavior in Thailand. The final article reviews empirical evidence on the optimal level of public spending in various countries confirming the existence of an inverted U-shaped relationship between government size and economic growth, known as the Armey curve.</p> Waleerat Suphannachart Copyright (c) 2021 Applied Economics Journal Mon, 19 Apr 2021 11:16:23 +0700 Contents Waleerat Suphannachart Copyright (c) 2021 Applied Economics Journal Mon, 19 Apr 2021 11:15:59 +0700 Demographic Changes and Direct Tax Dynamics in OECD and Non-OECD Markets: A Revisit <p>This study investigates the dynamic relationship between demography and direct taxes on income, profit, and capital gains. The data, for the period 1990–2017, encompass 89 OECD and non-OECD countries. The study employs generalized method of moments (GMM) estimation to identify the relationships. The findings suggest a U-shaped correlation in OECD countries, which supports the argument that a rise in the aging population initially decreases taxes on income, profit, and capital gains. Conversely, any further rise in the aging population after reaching a certain threshold leads to increased taxes on income, profit, and capital gains. Furthermore, across non-OECD countries, the findings suggest an inverted U-shaped relationship implying that the labor income tax rate will fall with a rise in the dependency ratio until the aged population constitutes half of all voters, but the correlation between these variables becomes positive if the number of aged people reaches 50% of voters or more. The findings lead to the suggestion that other potential factors, such as empathy among family members, as opposed to political muscle only may affect voters’ behavior in a median voter model.</p> Sheraz Rajput, Fiza Qureshi, Tariq Aziz Copyright (c) 2021 Applied Economics Journal Tue, 15 Dec 2020 10:21:49 +0700 Impact of Domestic Public Borrowing on Financial Development: Evidence from EU Transition Economies <p>Improvements in the financial sector have been suggested as a significant factor of economic growth. For that reason, it is crucial to reveal the determinants of financial sector development to ensure appropriate policy making. In this regard, this paper explores the influence of public borrowing from domestic money banks together with FDI inflows and remittances on the development of the financial sector over the period 1996–2017 in 11 EU transition economies with second-generation cointegration and causality analysis. The causality analysis discloses that domestic public borrowing had a significant influence on financial development. On the other side, the cointegration analysis revealed findings supporting both the safe asset view and the lazy bank view. Furthermore, a positive weak influence of FDI inflows and remittances on financial sector development was revealed in the long run.</p> Yilmaz Bayar, Emre Sakar Copyright (c) 2021 Applied Economics Journal Tue, 15 Dec 2020 10:22:26 +0700 Re-examination of the Convergence in Military Expenditures across NATO Countries: Do Different Approximations in Modelling Structural Breaks Matter? <p>The goal of this paper is to examine whether the ratio of military expenditures to GDP converges across 27 NATO countries for the period 1993-2018 within the scope of the stochastic convergence analysis. For this purpose, by paying regard to modelling structural breaks, the paper employs unit root tests with and without sharp breaks and also a unit root test with gradual breaks. The empirical findings imply that using different approximations in modelling structural breaks result in different output. The findings indicate weak evidence for the presence of the convergence as well. Theoretical and practical implications of these findings are discussed.</p> Gulbahar Ucler, Umit Bulut Copyright (c) 2021 Applied Economics Journal Tue, 15 Dec 2020 10:22:57 +0700 The Relationship Between FDI and Income Inequality: Does Governance Environment Matter? <p>Reducing poverty and income inequality in society is considered one of the millennium goals in developing countries. Attracting more foreign direct investment (FDI) inflows to boost economic growth and development is a good solution to achieve this goal. This paper empirically assesses the role of the governance environment in the FDI–income inequality relationship for balanced panel data of 37 developing countries from 2002 to 2018 using the two-step generalized method of moments Arellano-Bond estimator. The estimated results indicate that FDI and governance reduce income inequality while their interaction enhances it. Furthermore, economic growth, trade openness, unemployment, education, and infrastructure are significant determinants of income inequality in the developing countries studied. In particular, the Pooled Mean Group estimator is employed to guarantee the robustness of estimates. The findings suggest some policy implications for governments of developing countries in terms of reforming the governance environment to attract more FDI inflows and decrease income inequality.</p> Van Bon Nguyen Copyright (c) 2021 Applied Economics Journal Tue, 15 Dec 2020 12:52:15 +0700 Testing the EKC Hypothesis in Indonesia: Empirical Evidence from the ARDL-Based Bounds and Wavelet Coherence Approaches <p>This study aims to explore the long-run and causal effects of energy consumption, trade openness and economic growth on CO<sub>2</sub> emissions in Indonesia. It employs newly developed econometric techniques using yearly data between 1980 and 2016. To capture long-run effects, the study uses the ARDL estimator, while the wavelet coherence technique is employed to investigate correlations and causal effects among the variables. The main novelty of the wavelet coherence technique is that it can obtain information on dynamic correlation and/or causality between economic variables at different frequencies and in different time periods. The findings from the ARDL long-run and short-run estimates reveal the validity of the environmental Kuznets curve (EKC) hypothesis in Indonesia. Furthermore, both economic growth and energy usage positively trigger CO<sub>2</sub> emissions, while trade openness enhances the environmental quality. The wavelet coherence approach also provides supportive evidence for the ARDL long-run estimate.</p> Tomiwa Sunday Adebayo Copyright (c) 2021 Applied Economics Journal Tue, 15 Dec 2020 12:52:45 +0700 Over-the-Top (OTT) User Behavior under Users' Negative Attitude <p>Over-the-top (OTT) services are growing dramatically in Thailand. From previous studies of usage behavior, users' characteristics and positive attitudes were used to study the impact on the use of OTT services. However, there are few studies that describe the effects of negative attitudes on usage behavior. This research therefore aims to study the effects of negative attitudes on OTT usage behavior by applying behavioral economics frameworks to explain irrational user behavior. The data used in this study are from the survey conducted by the Office of the National Broadcasting and Telecommunications Commission (NBTC). The results from multiple linear regression models show that only the attitude toward face-to-face interactions has a significant negative relationship with the amount of OTT use while a lack of sleep and concern about crime are the only two negative attitudes that significantly affect the expenditure on OTT services. These may reflect a behavioral bias regarding self-control problems or readjustment and habituation. Associated organizations can use the negative effects to improve OTT user behaviors.</p> Supapong Tunsuparp Copyright (c) 2021 Applied Economics Journal Tue, 15 Dec 2020 12:53:18 +0700 The Optimal Size of Government and the Armey Curve: A Review of Empirical Evidence <p>The objective of this study is to examine the “inverted U” relationship between public spending and economic growth known as the Armey curve, and to review the empirical evidence on the optimal level of public spending required, by country, to maximize gross domestic product (GDP), based on regression methods and the Armey curve. The Armey curve denotes a positive relationship between public spending and GDP up to a maximum point thereafter the relationship becomes negative: that is, public spending is productive only to a certain extent, after which it becomes unproductive. The empirical findings show the inverted U-shape between public spending and growth, and therefore whether government spending is of an optimal size. World Bank data on public spending (as a percentage of GDP) and GDP per capita in US$ purchasing power parity (PPP) for 2017 identifies countries with low public spending and high GDP per capita, such as the Special Administrative Region of Macao, China. Moreover, the studies reviewed show that current public spending and/or average public spending across different countries is above or below the threshold public spending level. Among the policy implications, it is suggested that countries below the threshold inject public spending into investments that generate a greater impact on the economy. The management of public spending to achieve the optimal government size should ensure long-term sustainable economic growth for the countries of the world.</p> Edelina Coayla Copyright (c) 2021 Applied Economics Journal Tue, 15 Dec 2020 00:00:00 +0700