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The impact of government expenditure on economic growth: How sensitive to the level of development?

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Author Info

  • Wu, Shih-Ying
  • Tang, Jenn-Hong
  • Lin, Eric S.

Abstract

Previous studies generally find mixed empirical evidence on the relationship between government spending and economic growth. In this paper, we re-examine the causal relationship between government expenditure and economic growth by conducting the panel Granger causality test recently developed by (Hurlin, 2004) and (Hurlin, 2005) and by utilizing a richer panel data set which includes 182 countries that cover the period from 1950 to 2004. Our empirical results strongly support both Wagner's law and the hypothesis that government spending is helpful to economic growth regardless of how we measure the government size and economic growth. When the countries are disaggregated by income levels and the degree of corruption, our results also confirm the bi-directional causality between government activities and economic growth for the different subsamples of countries, with the exception of the low-income countries. It is suggested that the distinct feature of the low-income countries is likely owing to their inefficient governments and inferior institutions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 32 (2010)
Issue (Month): 6 (November)
Pages: 804-817

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Handle: RePEc:eee:jpolmo:v:32:y::i:6:p:804-817

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Web page: http://www.elsevier.com/locate/inca/505735

Related research

Keywords: Government size Economic growth Wagner' s law Panel Granger causality;

References

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Citations

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Cited by:
  1. Samad Bashirli & Ilkin Sabiroglu, 2013. "Testing Wagner’s Law in an Oil-Exporting Economy: the Case of Azerbaijan," Transition Studies Review, Springer, vol. 20(3), pages 295-307, November.
  2. KARGI, Bilal, 2013. "Bütçe Büyüklükleri/Performansı ve Büyüme Verileri: Türkiye Üzerine (2000:01-2012.03) Zaman Serileri Analizi
    [Budget Size / Performance and Growth Data: Time Series Analysis (2000:01-2012:
    ," MPRA Paper 55705, University Library of Munich, Germany.
  3. Calderón, César & Fuentes, J. Rodrigo, 2012. "Removing the constraints for growth: Some guidelines," Journal of Policy Modeling, Elsevier, vol. 34(6), pages 948-970.

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