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The effects of public expenditures on labour productivity in Europe

Author

Listed:
  • Igor Fedotenkov

    (European Commission)

  • Rangan Gupta

    (University of Pretoria)

Abstract

In this paper, we analyse the effects of public expenditures and their structure on productivity growth in industry and services in the European Union (EU) countries (1996–2017). We also control for the share of expenditures made by central governments. We find that productivity growth in industry decreases with government expenditures on environmental protection. As for services, productivity growth declines with military expenditures and increases with the centralisation of expenditures on public order and safety. These effects are mainly noted in Eastern European countries, and are less pronounced in Western Europe. Lower corruption increases productivity growth. Furthermore, our estimates suggest that there is a convergence in productivities across EU member states, with convergence faster in the service sector than in the industrial sector. These findings carry important policy implications.

Suggested Citation

  • Igor Fedotenkov & Rangan Gupta, 2021. "The effects of public expenditures on labour productivity in Europe," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(4), pages 845-874, November.
    • Handle: RePEc:kap:empiri:v:48:y:2021:i:4:d:10.1007_s10663-021-09505-w
    DOI: 10.1007/s10663-021-09505-w
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    More about this item

    Keywords

    Labour productivity; Government expenditures; Decentralisation; Services;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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