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Fiscal Policy and Economic Growth: Empirical Evidence from OECD

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Author Info

  • Nikos Benos

Abstract

This paper decomposes public spending and tax revenue into various sub-categories and estimates the impact of each of them on economic growth. The results provide some support for theoretical models of endogenous growth. Specifically, the main findings are: a) government spending on education, health and fuel-energy display a hump-shaped relationship with per capita growth; b) public expenditures on housing-community amenities, social security-social assistance and transport-communication are characterized by a U-shaped relation with growth; c) the effect of public spending on education and social expenditures on growth is stronger the poorer a country is, while the opposite is true for expenditures on health; d) there is a non-linear impact of distortionary taxation on growth, but the form on non-linearity is sensitive to changes in estimation method, since sometimes we find a hump-shaped and sometimes a U-shaped relationship; e) budget surplus has a positive effect on growth. These results are derived by estimating both single growth equations and systems of equations, which endogenize social spending.

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File URL: http://papers.econ.ucy.ac.cy/RePEc/papers/1-2005.pdf
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Bibliographic Info

Paper provided by University of Cyprus Department of Economics in its series University of Cyprus Working Papers in Economics with number 1-2005.

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Length: 53 pages
Date of creation: Jul 2005
Date of revision:
Handle: RePEc:ucy:cypeua:1-2005

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Web page: http://www.econ.ucy.ac.cy

Related research

Keywords: Panel Data; Fiscal Policy; Taxation; Government Expenditures;

References

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  15. Martijn R.E. Brons, 2000. "Growth Effects of Governmental Policies: A Comparative Analysis in a Multi-Country Context," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 31(4), pages 547-572.
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  21. Zhang, Jie, 1996. " Optimal Public Investments in Education and Endogenous Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(3), pages 387-404.
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Citations

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Cited by:
  1. Pierre-Richard Agénor, 2005. "Health and Infrastructure in Models of Endogenous Growth," The School of Economics Discussion Paper Series 0539, Economics, The University of Manchester.
  2. Agenor, Pierre-Richard & Moreno-Dodson, Blanca, 2006. "Public infrastructure and growth : new channels and policy implications," Policy Research Working Paper Series 4064, The World Bank.
  3. Benos, Nikos, 2009. "Fiscal policy and economic growth: empirical evidence from EU countries," MPRA Paper 19174, University Library of Munich, Germany.
  4. Stefano Bosi & Thierry Laurent, 2008. "Health, Growth and Welfare: Why Put Public Money on Medical R&D?," Documents de recherche 08-18, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.

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