Many researchers believe that government expenditures promote economic growth at the first development stage. However, as public expenditure becomes too large, countries will suffer a huge tax burden and tax distortions. This suggests an optimal public expenditure at which economic growth rate is the highest. However, the optimal point would differ across countries because of differences in economic structure. In this present paper, the optimal public expenditure in the developing countries is analyzed. Based on descriptive statistics and regression analysis of 30 developing countries in the period 2004-2013, the findings of this paper are threefold: (i) public expenditure increases along with development level of countries; (ii) the optimal public expenditure is at 19. 375% of GDP; (iii) economic growth has a positive relationship with both investment and labor force, and a negative relationship with urbanization.
Keywords
Public expenditure; Economic growth; Fiscal policy; Government size
References
[1] U.F. Akpan, D.E. Abang, “Does government spending spur economic growth? Evidence from Nigeria”, Journal of Economics and Sustainable Development. 4(9) (2013) 36-52. [2] E. Abounoori, Y. Nademi, Government Size Threshold and Economic Growth in Iran (No. 259600001). EcoMod. [3] O.F. Altunc, C. AydÕn, “The Relationship between Optimal Size of Government and Economic Growth: Empirical Evidence from Turkey, Romania and Bulgaria”, Procedia-Social and Behavioral Sciences. 92 (2013) 66-75.[4] H. Aly, M. Strazicich, “Is Government Size Optimal in the Gulf Countries of the Middle East? An empirical investigation”, International Review of Applied Economics. 14 (2000) Số trang.[5] S. Asimakopoulos, Y. Karavias, “The impact of government size on economic growth: A threshold analysis”, Economics Letters, S0165-1765(15) (2015) 00519-4. [6] R.J. Barro, Government spending in a simple model of endogeneous growth, Journal of political economy. 98 (5, Part 2) (1990) S103-S125. [7] IMF, “Public expenditure reform: Making difficult choices”, chapter 2, 2014.[8] P.V. İyidoğan, T. Turan, Government Size and Economic Growth in Turkey: A Threshold Regression Analysis, Prague Economic Papers, 26 (2) (2017) 142-154. [9] G. Karras, On the optimal government size in Europe: theory and empirical evidence, The Manchester School. 65(3) (1997) 280-294. [10] D.C. Mueller, Public choice: an introduction, In The encyclopedia of public choice, Springer, Boston, MA, 2004, pp. 32-48. [11] P. Pevcin, Does optimal size of government spending exist?, University of Ljubljana. 10 (2004) 101-135. [12] R. Ram, Government size and economic growth: A new framework and some evidence from cross-section and time-series data, The American Economic Review. 76(1) (1986) 191-203. [13] U.F. Akpan, D.E. Abang, “Does government spending spur economic growth? Evidence from Nigeria”, Journal of Economics and Sustainable Development. 4(9) (2013) 36-52. [14] E. Abounoori, Y. Nademi, Government Size Threshold and Economic Growth in Iran (No. 259600001). EcoMod. [15] O.F. Altunc, C. AydÕn, “The Relationship between Optimal Size of Government and Economic Growth: Empirical Evidence from Turkey, Romania and Bulgaria”, Procedia-Social and Behavioral Sciences. 92 (2013) 66-75.[16] H. Aly, M. Strazicich, “Is Government Size Optimal in the Gulf Countries of the Middle East? An empirical investigation”, International Review of Applied Economics. 14(4) (2000) số trang.[17] D. Anderson, “Investment and Economic Growth”, World Development, 1990, pp. 1057-1079.[18] S. Asimakopoulos, Y. Karavias, “The impact of government size on economic growth: A threshold analysis”, Economics Letters. S0165-1765(15) (2015) 00519-4. [19] R.J. Barro, Government spending in a simple model of endogeneous growth, Journal of political economy. 98 (5, Part 2) (1990) S103-S125. [20] W. Chinnakum et al, Factors affecting economic output in developed countries: A copula approach to sample selection with panel data, International Journal of Approximate Reasoning, 2013. [21] M. Fay, O. Charlotte, “Urbanization without growth: A not-so-uncommon phenomenon”, Policy Research Working Paper, no. 2412: The World Bank, 2000.[22] IMF, “Public expenditure reform: Making difficult choices”, chapter 2, 2014.[23] P.V. İyidoğan, T. Turan, Government Size and Economic Growth in Turkey: A Threshold Regression Analysis, Prague Economic Papers. 26(2) (2017) 142-154. [24] G. Karras, On the optimal government size in Europe: theory and empirical evidence, The Manchester School. 65(3) (1997) 280-294. [25] A.R. Kira, The Factors Affecting Gross Domestic Product (GDP) in Developing Countries: The Case of Tanzania, European Journal of Business and Management. 5 (2013) 2222-1905. [26] M. Machado et al, “Economic Development and Economic Variables: An analyze of Emergent Countries”, Social Science Research Network, 2015. [27] D.C. Mueller, Public choice: an introduction. In The encyclopedia of public choice, Springer, Boston, MA, 2004, pp. 32-48. [28] H.O. Onchari, The relationship between public expenditure and economic growth in Kenya, University of Nairobi, 2013. [29] P. Pevcin, Does optimal size of government spending exist?, University of Ljubljana. 10 (2004) 101-135. [30] D. Potts, “Challenging the Myths of Urban Dynamics in Sub-Saharan Africa: The Evidence from Nigeria”. World Development, 2012, pp. 1382-1393.[31] R. Ram, Government size and economic growth: A new framework and some evidence from cross-section and time-series data, The American Economic Review. 76(1) (1986) 191-203. [32] P. Romer, “Increasing Returns and Long-Run Growth”, Journal of Political Economy. 94 (1986) 1002-1037.[33] R.M. Solow, “A Contribution to the Theory of Economic Growth”, The Quarterly Journal of Economics. 70 (1956) 65-94.[34] P. Upreti, Factors Affecting Economic Growth in Developing Countries, Major Themes in Economics, 2015.
Government expenditure in New Zealand since 1935: a preliminary reassessment
