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Fiscal Policy and Economic Growth: Empirical Evidence from OECD

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  • 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.

Suggested Citation

  • Nikos Benos, 2005. "Fiscal Policy and Economic Growth: Empirical Evidence from OECD," University of Cyprus Working Papers in Economics 1-2005, University of Cyprus Department of Economics.
    • Handle: RePEc:ucy:cypeua:1-2005
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    Cited by:

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    2. Benos, Nikos, 2009. "Fiscal policy and economic growth: empirical evidence from EU countries," MPRA Paper 19174, University Library of Munich, Germany.
    3. Agénor, Pierre-Richard, 2008. "Health and infrastructure in a model of endogenous growth," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1407-1422, December.
    4. Dimitrios PAPARAS & Christian RICHTER & Alexandros PAPARAS, 2015. "Fiscal Policy and Economic Growth, Empirical Evidence in European Union," Turkish Economic Review, KSP Journals, vol. 2(4), pages 239-268, December.
    5. Musa Success Jibrin & Success Ejura Blessing & Iyaji Danjuma, 2014. "The Effects of Public Expenditure on Private Investment and Economic Growth in Nigeria," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 3(2), pages 90-97.
    6. 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.
    7. Hammed Adetola Adefeso, 2016. "Productive Government Expenditure and Economic Performance in sub-Saharan Africa: An Empirical Investigation," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 19(2), pages 1-18, November.
    8. Nursini Nursini, 2017. "Effect of Fiscal Policy and Trade Openness on Economic Growth in Indonesia: 1990-2015," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 358-364.
    9. Dimitrios Paparas & Christian Richter, 2015. "Fiscal policy and economic growth: Empirical evidence from the European Union," Working Papers 2015.06, International Network for Economic Research - INFER.

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