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Economic growth and budgetary components: a panel assessment for the EU

  • Afonso, António
  • González Alegre, Juan

In this paper we test whether a reallocation of government budget items can enhance long-term GDP growth in a set of European countries. We apply modern panel data techniques to the period 1970-2006, and we use three alternative dependent variables in a growth regression: economic growth, total factor productivity and labour productivity. Our results are able to identify also the distortions induced by public expenditure in the private factors allocation. In particular, we detect a strong crowding-in effect associated to public investment, which have enhanced economic growth by boosting private investment. We also associate a significant dependence of productivity on public expenditure on education as well as the role of social security and health issues in growth and the labour market. JEL Classification: C23, E62, H50, O40

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Paper provided by European Central Bank in its series Working Paper Series with number 0848.

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Date of creation: Jan 2008
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Handle: RePEc:ecb:ecbwps:20080848
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