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An Investigation of the Public Deficts and Government Spending Relationship: Evidence for Greece

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  • George Hondroyiannis
  • Evangelia Papapetrou

Abstract

This paper tests the validity of the Buchanan-Wagner hypothesis for Greece, that increases in public spending are the result of the tolerance of large deficits over the period 1961–1994. To test this hypothesis, three unit-root pretests, the Dickey-Fuller, Phillips-Perron and Kwiatkowski et al. and maximum likelihood estimation techniques of cointegrating vectors and a vector error-correction model are employed. A long-run relationship is found to exist among government spending, deficit, income,wages and adult population and the importance of short-run deviations are presented. The empirical evidence suggests that Buchanan and Wagner hypothesis, seems to find support for Greece in the long-run and the short-run. Further, productivity in the public sector is lower than in the private sector and the growth of income is not an important determinant of the increase in the relative size of public spending. Copyright Kluwer Academic Publishers 2001

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File URL: http://hdl.handle.net/10.1023/A:1010346400278
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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 107 (2001)
Issue (Month): 1 (April)
Pages: 169-182

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Handle: RePEc:kap:pubcho:v:107:y:2001:i:1:p:169-182

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Web page: http://www.springerlink.com/link.asp?id=100332

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  1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  2. Ashworth, John, 1995. "The Empirical Relationship between Budgetary Deficits and Government Expenditure Growth: An Examination Using Cointegration," Public Finance = Finances publiques, , vol. 50(1), pages 1-18.
  3. Nouriel Roubini & Jeffrey Sachs, 1989. "Government Spending and Budget Deficits in the Industrial Economies," NBER Working Papers 2919, National Bureau of Economic Research, Inc.
  4. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
  5. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  6. Schwert, G. William, 1987. "Effects of model specification on tests for unit roots in macroeconomic data," Journal of Monetary Economics, Elsevier, vol. 20(1), pages 73-103, July.
  7. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
  8. Hondroyiannis, George & Papapetrou, Evangelia, 1995. "An Examination of Wagner's Law for Greece: A Cointegration Analysis," Public Finance = Finances publiques, , vol. 50(1), pages 67-79.
  9. Perron, P., 1986. "Trends and Random Walks in Macroeconomic Time Series: Further Evidence From a New Approach," Cahiers de recherche 8650, Universite de Montreal, Departement de sciences economiques.
  10. Khan, Ashfaque H, 1988. "Public Spending and Deficits: Evidence from a Developing Economy," Public Finance = Finances publiques, , vol. 43(3), pages 396-402.
  11. Provopoulos, George A, 1982. "Public Spending and Deficits: The Greek Experience," Public Finance = Finances publiques, , vol. 37(3), pages 422-27.
  12. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
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Cited by:
  1. James Alm & Abel Embaye, 2011. "Explaining the Growth of Government Spending in South Africa," Working Papers 1105, Tulane University, Department of Economics.
  2. Konstantinos Angelopoulos & Apostolis Philippopoulos, 2007. "The growth effects of fiscal policy in Greece 1960–2000," Public Choice, Springer, vol. 131(1), pages 157-175, April.

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