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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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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
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Handle: RePEc:ucy:cypeua:1-2005

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Keywords: Panel Data Fiscal Policy Taxation Government Expenditures

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