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Time-Series Evidence on the Nonlinearity Hypothesis for Public Spending

  • Stefan Mittnik
  • Thorsten Neumann

Barro-type endogenous growth models propose a nonmonotonic relationship between productive public spending and growth. Under this so-called nonlinearity hypothesis the size and direction of growth effects due to an increase in public spending depend on the share of public spending in GDP. Employing German time-series data we examine the validity of the nonlinearity hypothesis. We estimate growth effects by using models whose coefficients are allowed to vary with the share of public spending in GDP. Our results support the hypothesis for public consumption but not for public investment data. (JEL H54, E62, C22) Copyright 2003, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/ei/cbg028
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Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 41 (2003)
Issue (Month): 4 (October)
Pages: 565-573

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Handle: RePEc:oup:ecinqu:v:41:y:2003:i:4:p:565-573
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