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Effects of Growth and Volatility in Public Expenditures on Economic Growth: Theory and Evidence

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  • Liutang Gong

    ()
    (Guanghua School of Management, Peking University
    Institute for Advanced Study, Wuhan University)

  • Heng-fu Zou

    ()
    (Guanghua School of Management, Peking University
    Institute for Advanced Study, Wuhan University
    Development Research Group, The World Bank)

Abstract

This paper sets up a theoretical model linking the growth rate of the economy to the growth rate and volatility of different government expenditures. On a theoretical basis, it is found that volatility in government spending can be positively or negatively associated with economic growth depending on the intertemporal elasticity in consumption. On an empirical basis, it is rather surprising to find no association between growth in capital expenditure and output growth, whereas growth in current expenditure seems to stimulate output growth. In particular, growth in transportation and communication seems to have a negative effect on output growth. It is also very interesting to find that the rises in the volatility in the growth of general public services, transportation, and communication have a positive effect on output growth.

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 3 (2002)
Issue (Month): 2 (November)
Pages: 379-406

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Handle: RePEc:cuf:journl:y:2002:v:3:i:2:p:379-406

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Keywords: Public expenditures; Volatility; Economic growth;

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References

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  1. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  2. David Romer, 1991. "Openness and inflation: theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Nov.
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  7. Turnovsky, Stephen J, 1993. "Macroeconomic Policies, Growth, and Welfare in a Stochastic Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(4), pages 953-81, November.
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  9. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 32(3), pages 485-512, December.
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  11. Obstfeld, Maurice, 1994. "Risk-Taking, Global Diversification, and Growth," American Economic Review, American Economic Association, American Economic Association, vol. 84(5), pages 1310-29, December.
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  14. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, Elsevier, vol. 16(2), pages 141-163, September.
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Cited by:
  1. António Afonso & Davide Furceri, 2008. "Government Size, Composition, Volatility and Economic Growth," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2008/04, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. Darong Dai, 2013. "Modeling The Minimum Time Needed To Economic Maturity," Economic Research Guardian, Weissberg Publishing, Weissberg Publishing, vol. 3(1), pages 2-21, June.
  3. Agnese Sacchi & Simone Salotti, 2014. "The influence of decentralized taxes and intergovernmental grants on local spending volatility," Working Papers, Universidade de Vigo, GEN - Governance and Economics research Network 1405, Universidade de Vigo, GEN - Governance and Economics research Network.
  4. Juncheng Feng & Rui Hao & Yang Li & Kezhong Zhang, 2012. "The Effect of Leadership Transition on Government Expenditure: Evidence from China," Annals of Economics and Finance, Society for AEF, Society for AEF, vol. 13(1), pages 91-112, May.
  5. Wang, Chan, 2012. "A very preliminary survey on growth and development," MPRA Paper 39037, University Library of Munich, Germany.

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