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The Impact of Government Size on Output Volatility: Evidence from World Economies

Author

Listed:
  • Oz-Yalaman, Gamze

    (Eskisehir Osmangazi University)

  • Sevinc, Deniz

    (Anadolu University)

  • Sevil, Guven

    (Anadolu University)

Abstract

One of the most important goals of policy-makers is to achieve macroeconomic stability, which could significantly be affected by output volatility. In an effort to provide insights with regard to macroeconomic stability, this study aims to model the volatility of output by using univariate GARCH models and to examine the impact of government size on output volatility by using extensive data set from eight different classifications of world economies for the period between 1960 and 2017. The study also employs the Granger Causality Analysis to determine the direction of this relationship. The results provide strong evidence for a negative relation between government size and output volatility. Output volatility is largely dependent on its own shocks and negatively influenced by outside shock as government size. Moreover, confirming Keynesian Hypothesis, the results show that there is mostly one-way causality from government size to output volatility. The results are robust in terms of different classifications of world economies, different measurements of output volatility, different methodologies and controlling for the effect of different sets of exogenous variables.

Suggested Citation

  • Oz-Yalaman, Gamze & Sevinc, Deniz & Sevil, Guven, 2019. "The Impact of Government Size on Output Volatility: Evidence from World Economies," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 10(4), pages 761-776, July.
    • Handle: RePEc:ris:buecrj:0421
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    Cited by:

    1. Jiang, Yong & Zhou, Zhongbao & Liu, Qing & Lin, Ling & Xiao, Helu, 2020. "How do oil price shocks affect the output volatility of the U.S. energy mining industry? The roles of structural oil price shocks," Energy Economics, Elsevier, vol. 87(C).

    More about this item

    Keywords

    Output Volatility; Government Expenditure; Univariate GARCH Model; Granger Causality;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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