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Budget spending and economic growth in Croatia Dynamics and relathionships over the past two decades

Author

Listed:
  • Ivo Sever

    () (Scientific advisor (ret.), Zagreb, Croatia)

  • Sasa Drezgic

    (University of Rijeka, Faculty of Economics, Rijeka, Croatia)

  • Helena Blazic

    (University of Rijeka, Faculty of Economics, Rijeka, Croatia)

Abstract

The objective of this research is to analyze the relationship between government budget spending and the effect on the growth and structure of the GDP of Croatia during the past two decades. The starting working assumption (hypothesis) is that the volume of total budget expenditure (including the foreign borrowing) has not been realizing appropriate effect on GDP growth. In the analysis of these relationships we primarily use the method of vector autoregressions (VAR). The main result of the analysis showed that, in accordance with theoretical assumptions, the structure of expenditures is essential for the effects of budgetary spending on economic growth. We determine the positive effects of investment spending and purchases of goods and services and the negative effects of other categories of current spending. The reduction of capital expenditures during the recession presents a particularly adverse trend, which reduces the rate of growth of the economy in the long and short term. A fundamental conclusion of the research is that the budget expenditures have not adequately affected the GDP growth. Therefore, it is possible to affect the economic growth by changing the structure of budgetary spending, as well as directing public borrowing to investment financing.

Suggested Citation

  • Ivo Sever & Sasa Drezgic & Helena Blazic, 2011. "Budget spending and economic growth in Croatia Dynamics and relathionships over the past two decades," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 29(2), pages 291-331.
  • Handle: RePEc:rfe:zbefri:v:29:y:2011:i:2:p:291-331
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    File URL: https://www.efri.uniri.hr/sites/efri.hr/files/cr-collections/2/29-2-sever.pdf
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    References listed on IDEAS

    as
    1. Hansson, Par & Henrekson, Magnus, 1994. "A New Framework for Testing the Effect of Government Spending on Growth and Productivity," Public Choice, Springer, vol. 81(3-4), pages 381-401, December.
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    More about this item

    Keywords

    budget spending; gross domestic product; vector autoregression; structure of expenditures; public debt; Croatia;

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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