IDEAS home Printed from https://ideas.repec.org/p/ays/ispwps/paper1702.html
   My bibliography  Save this paper

The Impact of Public Expenditures on Economic Growth in Two Very Different Countries: A comparative Analysis of Armenia and Spain

Author

Abstract

There is considerable controversy in the economic literature concerning whether particular government expenditures have an impact on economic growth. This study analyzes the macroeconomic magnitude of government expenditures in Armenia and Spain and evaluates whether there exists a causal relationship between government expenditures and economic growth and vice versa (Keynesian hypothesis and Wagner’s Law). The study employs VAR tests to analyze annual data for the years 1996-2014. Furthermore, by utilizing Granger causality tests, the study reveals whether the government expenditures are a significant factor in economic growth in short-term perspective. Finally, IRF and FEVD tests are applied to estimate the effect of a change in particular government expenditures on GDP for twelve year time horizon. This study validates the hypothesis that some public expenditures by the Armenian and Spanish public sectors positively contribute to the growth of their economies, while social protection is negatively related to GDP.

Suggested Citation

  • Gohar Samvel Sedrakyan & Laura Varela-Candamio, 2017. "The Impact of Public Expenditures on Economic Growth in Two Very Different Countries: A comparative Analysis of Armenia and Spain," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1702, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:ays:ispwps:paper1702
    as

    Download full text from publisher

    File URL: http://icepp.gsu.edu/files/2017/02/paper1702-The-Impact-of-Public-Expenditures-on-Economic-Growth-in-Two-Very-Different-Countries-A-comparative-Analysis-of-Armenia-and-Spain.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
    2. Gustavo Canavire-Bacarreza & Jorge Martínez-Vázquez & Violeta Vulovic, 2013. "Taxation and Economic Growth in Latin America," IDB Publications (Working Papers) 81798, Inter-American Development Bank.
    3. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    4. Stock, James H. & Watson, Mark W., 1989. "Interpreting the evidence on money-income causality," Journal of Econometrics, Elsevier, vol. 40(1), pages 161-181, January.
    5. Jorge Martínez-Vázquez & Violeta Vulovic & Blanca Moreno Dodson, 2012. "The Impact of Tax and Expenditure Policies on Income Distribution: Evidence from a Large Panel of Countries," Hacienda Pública Española / Review of Public Economics, IEF, vol. 200(1), pages 95-130, March.
    6. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
    7. Yongzheng Liu & Jorge Martinez-Vazquez, 2015. "Growth–Inequality Tradeoff in the Design of Tax Structure: Evidence from a Large Panel of Countries," Pacific Economic Review, Wiley Blackwell, vol. 20(2), pages 323-345, May.
    8. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    9. Claus, Iris & Martinez-Vazquez, Jorge & Vulovic, Violeta, 2012. "Government Fiscal Policies and Redistribution in Asian Countries," ADB Economics Working Paper Series 310, Asian Development Bank.
    10. Tsangyao Chang & WenRong Liu & Steven Caudill, 2004. "A re-examination of Wagner's law for ten countries based on cointegration and error-correction modelling techniques," Applied Financial Economics, Taylor & Francis Journals, vol. 14(8), pages 577-589.
    11. Vito Tanzi & Howell H. Zee, 1997. "Fiscal Policy and Long-Run Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 179-209, June.
    12. M. I. Ansari & D. V. Gordon & C. Akuamoah, 1997. "Keynes versus Wagner: public expenditure and national income for three African countries," Applied Economics, Taylor & Francis Journals, vol. 29(4), pages 543-550.
    13. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    14. 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 1057-1072, June.
    15. Akitoby, Bernardin & Clements, Benedict & Gupta, Sanjeev & Inchauste, Gabriela, 2006. "Public spending, voracity, and Wagner's law in developing countries," European Journal of Political Economy, Elsevier, vol. 22(4), pages 908-924, December.
    16. Jorge Martinez-Vazquez & VIoleta Vulovic, 2011. "Tax Structure in Latin America: Its Impact on the Real Economy and Compliance," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1122, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    17. Bharat Kolluri & Michael Panik & Mahmoud Wahab, 2000. "Government expenditure and economic growth: evidence from G7 countries," Applied Economics, Taylor & Francis Journals, vol. 32(8), pages 1059-1068.
    18. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, Decembrie.
    19. Clements, Benedict J. & Faircloth, Christopher & Verhoeven, Marijn, 2007. "Gasto público en América Latina: tendencias y aspectos clave de política," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    20. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    21. Niloy Bose & M. Emranul Haque & Denise R. Osborn, 2007. "Public Expenditure And Economic Growth: A Disaggregated Analysis For Developing Countries," Manchester School, University of Manchester, vol. 75(5), pages 533-556, September.
    22. Gupta, Sanjeev & Clements, Benedict & Baldacci, Emanuele & Mulas-Granados, Carlos, 2005. "Fiscal policy, expenditure composition, and growth in low-income countries," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 441-463, April.
    23. Diego Enrique Pinilla Rodríguez & Juan de Dios Jiménez Aguilera & Roberto Montero Granados, 2013. "Gasto público y crecimiento económico. Un estudio empírico para América Latina," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, May.
    24. Canavire-Bacarreza, Gustavo & Martínez-Vázquez, Jorge & Vulovic, Violeta, 2013. "Taxation and Economic Growth in Latin America," IDB Publications (Working Papers) 4583, Inter-American Development Bank.
    25. Asafu-Adjaye, John, 2000. "The relationship between energy consumption, energy prices and economic growth: time series evidence from Asian developing countries," Energy Economics, Elsevier, vol. 22(6), pages 615-625, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sedrakyan, Gohar Samvel & Varela-Candamio, Laura, 2019. "Wagner’s law vs. Keynes’ hypothesis in very different countries (Armenia and Spain)," Journal of Policy Modeling, Elsevier, vol. 41(4), pages 747-762.
    2. Philip Arestis & Hüseyin Şen & Ayşe Kaya, 2021. "On the linkage between government expenditure and output: empirics of the Keynesian view versus Wagner’s law," Economic Change and Restructuring, Springer, vol. 54(2), pages 265-303, May.
    3. Magazzino, Cosimo, 2010. "Wagner's law and augmented Wagner's law in EU-27. A time-series analysis on stationarity, cointegration and causality," MPRA Paper 26668, University Library of Munich, Germany.
    4. 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.
    5. Ibrar Hussain & Jawad Hussain & Arshad Ali & Shabir Ahmad, 2021. "A Dynamic Analysis of the Impact of Fiscal Adjustment on Economic Growth: Evidence From Pakistan," SAGE Open, , vol. 11(2), pages 21582440211, June.
    6. Maparu, Tuhin Subhra & Mazumder, Tarak Nath, 2017. "Transport infrastructure, economic development and urbanization in India (1990–2011): Is there any causal relationship?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 100(C), pages 319-336.
    7. Ciro Bazán & Víctor Josué Álvarez-Quiroz & Yennyfer Morales Olivares, 2022. "Wagner’s Law vs. Keynesian Hypothesis: Dynamic Impacts," Sustainability, MDPI, vol. 14(16), pages 1-25, August.
    8. Chaido Dritsaki & Melina Dritsaki, 2010. "Government Expenditure and National Income: Causality Tests for Twelve New Members of E.E," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 13(38), pages 67-89, December.
    9. Dimitrios Paparas & Christian Richter & Ioannis Kostakis, 2019. "The validity of Wagner’s Law in the United Kingdom during the Last Two Centuries," International Economics and Economic Policy, Springer, vol. 16(2), pages 269-291, April.
    10. Magazzino, Cosimo, 2012. "Wagner versus Keynes: Public spending and national income in Italy," Journal of Policy Modeling, Elsevier, vol. 34(6), pages 890-905.
    11. Ibrar Hussain & Zahoor Khan & Muhmmad Rafiq, 2017. "Compositional Changes in Public Expenditure and Economic Growth: Time Series Evidence from Pakistan," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(1), pages 1-20, March.
    12. Shahbaz, Muhammad & Rasool, Ghulam & Ahmed, Khalid & Mahalik, Mantu Kumar, 2016. "Considering the effect of biomass energy consumption on economic growth: Fresh evidence from BRICS region," Renewable and Sustainable Energy Reviews, Elsevier, vol. 60(C), pages 1442-1450.
    13. Bashiri Behmiri, Niaz & Pires Manso, José R., 2012. "Does Portuguese economy support crude oil conservation hypothesis?," Energy Policy, Elsevier, vol. 45(C), pages 628-634.
    14. Nayak, Dinesh Kumar & Hazarika, Bhabesh, 2022. "Linkage between Income and Government Expenditure at Indian Sub-nationals: A Second Generation Panel Co-integration Techniques," Working Papers 22/374, National Institute of Public Finance and Policy.
    15. V. Chandran Govindaraju & Ramesh Rao & Sajid Anwar, 2011. "Economic growth and government spending in Malaysia: a re-examination of Wagner and Keynesian views," Economic Change and Restructuring, Springer, vol. 44(3), pages 203-219, August.
    16. Sulaiman, Saidu & Masih, Mansur, 2017. "Is liberalizing finance the game in town for Nigeria ?," MPRA Paper 95569, University Library of Munich, Germany.
    17. Houssem Eddine Chebbi, 2010. "Long and Short–Run Linkages Between Economic Growth, Energy Consumption and CO2 Emissions in Tunisia," Middle East Development Journal, Taylor & Francis Journals, vol. 2(1), pages 139-158, January.
    18. Ali, Wajid & Munir, Kashif, 2016. "Testing Wagner versus Keynesian Hypothesis for Pakistan: The Role of Aggregate and Disaggregate Expenditure," MPRA Paper 74570, University Library of Munich, Germany.
    19. Feng, Taiwen & Sun, Linyan & Zhang, Ying, 2009. "The relationship between energy consumption structure, economic structure and energy intensity in China," Energy Policy, Elsevier, vol. 37(12), pages 5475-5483, December.
    20. Mustafa Ismihan & Aysit Tansel & Kivilcim Metin-Ozcan, 2002. "Macroeconomic Instability, Capital Accumulation and Growth : The Case of Turkey 1963-1999," Working Papers 0205, Department of Economics, Bilkent University.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ays:ispwps:paper1702. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Paul Benson (email available below). General contact details of provider: https://edirc.repec.org/data/ispgsus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.