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The impact of government size on economic growth: a threshold analysis

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  • Stylianos Asimakopoulos
  • Yiannis Karavias

Abstract

This paper examines the nature of the relationship between government size and economic growth and identifies the optimal level of government size through a novel and very general non-linear panel Generalized Method of Moments approach. Using a large panel dataset we uncover a statistically significant non-linear relationship via identifying the optimal threshold of government spending that maximizes growth. Furthermore, we show that the relationship between the two variables above and below that optimal level is statistically significant, even if we split our sample to developed and developing countries. Finally, we fi?nd an asymmetric impact of government size on economic growth in developed and developing countries around the estimated threshold.

Suggested Citation

  • Stylianos Asimakopoulos & Yiannis Karavias, "undated". "The impact of government size on economic growth: a threshold analysis," Discussion Papers 15/02, University of Nottingham, Granger Centre for Time Series Econometrics.
  • Handle: RePEc:not:notgts:15/02
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    References listed on IDEAS

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    3. Ho Thuy Ai & Ping, Lin, 2018. "Impacts of fiscal policy on economic growth: Another look from institutional perspective," Economics Discussion Papers 2018-45, Kiel Institute for the World Economy (IfW).
    4. Zhou, Peng, 2017. "Separating Yolk from White: A Filter based on Economic Properties of Trend and Cycle," Cardiff Economics Working Papers E2017/1, Cardiff University, Cardiff Business School, Economics Section.
    5. Polemis, Michael & Stengos, Thanasis, 2017. "Does Competition Prevent Industrial Pollution? Evidence from a Panel Threshold Model," MPRA Paper 85177, University Library of Munich, Germany.
    6. Pelin Varol Iyidogan & Taner Turan, . "Government Size and Economic Growth in Turkey: A Threshold Regression Analysis," Prague Economic Papers, University of Economics, Prague, vol. 0, pages 1-13.
    7. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2017. "Heterogeneity in the debt-growth nexus: Evidence from EMU countries," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 470-486.
    8. Marta Gómez-Puig & Simón Sosvilla-Rivero, 2017. "Nonfinancial debt and economic growth in euro-area countries," IREA Working Papers 201714, University of Barcelona, Research Institute of Applied Economics, revised Jul 2017.
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    12. Andrew Phiri, 2017. "Nonlinearities in Wagner's law: further evidence from South Africa," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 9(3), pages 231-249.
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    More about this item

    Keywords

    government size; economic growth; dynamic threshold estimation.;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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