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Relationship between government spending and economic growth in the Czech Republic

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  • Irena Szarowská

    (Katedra financí, Obchodně podnikatelská fakulta, Slezská univerzita Opava, Univerzitní nám. 1934/3, 733 40 Karviná, Česká republika)

Abstract

This article aims to provide direct empirical evidence on business cycle relations between government spending and economic growth in the Czech Republic. Government spending plays an important role in a fiscal policy as a possible automatic stabilizer. We analyzed annual data on government spending in compliance with the COFOG international standard. We use cross-correlation on cyclically filtered adjusted time series over the period 1995-2008. The cyclical properties of GDP and government spending function were, in average, found as weakly correlated. However, we report considerable differences in correlations across the spending functions. The lowest correlation coefficient (0.06) was found for recreation, culture and religion and the highest average was reported for economic affairs (-0.51). As regards to using government spending as the stabilizer, total government spending, general public services, defense, economic affairs and education spending were negative correlated and it confirms countercyclical relation between these spending functions and GDP. It is in line with theory suggestion. On the other hand, the highest spending function (social protection) correlated weak positive and it expresses procyclical development.The results of Johansen cointegration test proved the existence of long-run relationship between GDP and total government spending, GDP and public order and safety spending and GDP and economic affairs spending.

Suggested Citation

  • Irena Szarowská, 2011. "Relationship between government spending and economic growth in the Czech Republic," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 59(7), pages 415-422.
    • Handle: RePEc:mup:actaun:actaun_2011059070415
    DOI: 10.11118/actaun201159070415
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    References listed on IDEAS

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    1. Zvi Hercowitz & Michel Strawczynski, 2004. "Cyclical Ratcheting in Government Spending: Evidence from the OECD," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 353-361, February.
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    Cited by:

    1. Martina Halásková & Renata Halásková, 2018. "Evaluation Structure of Local Public Expenditures in the European Union Countries," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 66(3), pages 755-766.
    2. Irena Szarowská, 2012. "Public spending and Wagner's law in Central and Eastern European countries," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 60(2), pages 383-390.
    3. Omoshoro-Jones, Oyeyinka Sunday, 2016. "A Cointegration and Causality Test on Government Expenditure –Economic Growth Nexus: Empirical Evidence from a South African Province," MPRA Paper 102085, University Library of Munich, Germany, revised 17 Oct 2017.
    4. Emilda Hashim* & Norimah Rambeli@ Ramli & Nurhanani Romli & Norasibah Abdul Jalil & Syazwani Mohd Bakri & Ng Woan Ron, 2018. "Determinants of Real GDP in Malaysia," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 97-103:3.

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