The Optimal Public Expenditure in Developing Countries

2019 ◽  
Vol 35 (2) ◽  
Author(s):  
Hoang Khac Lich ◽  
Duong Cam Tu
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Public Choice ◽  
Empirical Evidence ◽  
Government Spending ◽  
Public Expenditure ◽  
Government Size ◽  
Optimal Size ◽  
Size Of Government ◽  
Factors Affecting

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.

scholarly journals The Impact of Public Expenditure on Economic Growth: A Review of International Literature

2019 ◽  
Vol 19 (2) ◽  
pp. 81-101
Author(s):  
Sheilla Nyasha ◽  
Nicholas M. Odhiambo
Keyword(s):  
Economic Growth ◽  
Empirical Evidence ◽  
Government Spending ◽  
Public Expenditure ◽  
Negative Impact ◽  
Positive Impact ◽  
Government Expenditure ◽  
Empirical Literature ◽  
The Impact ◽  
The Relationship

Abstract Research background: Although a number of studies have been conducted on the relationship between public expenditure and economic growth, it is difficult to tell with certainty whether or not an increase in public expenditure is good for economic growth. This lack of consensus on the results of the previous empirical findings makes this study of paramount importance as we take stock of the available empirical evidence from the 1980s to date. Purpose: In this paper, theoretical and empirical literature on the relationship between government expenditure and economic growth has been reviewed in detail. Focus was placed on the review of literature that assessed the impact of government spending on economic growth. Research Methodology: This study grouped studies on the impact of public expenditure on economic growth based on their results. Three groups emerged – positive impact, negative impact and no impact. This was followed by a review of each relevant study and an evaluation of which outcome was more prevalent among the existing studies on the subject. Results: The literature reviewed has shown that the impact of government spending on economic growth is not clear cut. It varies from positive to negative; with some studies even finding no impact. Although the impact of government spending on economic growth was found to be inconclusive, the scale tilts towards a positive impact. Novelty: The study provides an insight into the relationship between public expenditure and economic growth based on a comprehensive review of previous empirical evidence across various countries since the 1980s.

scholarly journals Economic Growth and the Public Sector: A Comparison of Canada and Italy, 1870-2013

2018 ◽  
Vol 10 (3) ◽  
pp. 221-243
Author(s):  
Livio Di Matteo ◽  
Thomas Barbiero
Keyword(s):  
Economic Growth ◽  
Public Sector ◽  
Economic Performance ◽  
Government Spending ◽  
Central Government ◽  
Government Size ◽  
Size Of Government ◽  
The Public ◽  
Economic Stagnation

There is considerable evidence that the size of the public sector can influence an economy’s rate of economic growth. We investigate public sector spending of central governments and economic performance in two G7 countries over the long-term, Canada and Italy. Their economic performance has diverged in the last 25 years and it is worth investigating whether the size of government was a contributing factor. We find that in both the case of Canada and Italy the size of central government spending directly affects the performance of their economies in an inverse U-shaped relationship known as a Scully/BARS Curve. These results suggest that along with modifying current central government size, other levels of governments may need to shrink their own spending. The fact that the amount spent by government on pensions as a percentage of GDP in Italy is nearly 4 times that in Canada may partly explain the higher level of Italy’s public debt as well as an indirect contributing factor to economic stagnation in the last 25 years.

scholarly journals MEASURING THE OPTIMAL GOVERNMENT SIZE THAT CONTRIBUTE TO ECONOMIC GROWTH OF THE MUSLIM COUNTRIES

2018 ◽  
Vol 7 (1) ◽  
Author(s):  
Jarita Duasa
Keyword(s):  
Economic Growth ◽  
Growth Model ◽  
Fixed Effects ◽  
Dynamic Models ◽  
Government Size ◽  
Optimal Size ◽  
Size Of Government ◽  
Muslim Countries ◽  
The Impact

The issue of a correct ‘government size’ for economic prosperity of a nation, particularly Muslim nation, is highly linked with the issue of optimal ‘role of state’. The present study attempts to utilise more efficient econometric methods on a sample of Muslim countries over a specific period of time in order to investigate the relationship between government size and economic growth. It also attempts to identify optimal size of government (role of state) that maximise the economic growth of the countries by applying static and dynamic panel estimations on a widely used ‘growth model’ for assessing the impact of government size on economic growth. The findings indicate that a small size of government contributes more to the economic growth of the countries. The results seem to be more robust by using the fixed-effects model as compared to other static or even dynamic models===============================================Pengukuran Ukuran Pemerintah Optimal yang Berkontribusi terhadap Pertumbuhan Ekonomi di Negara-negara Muslim. Persoalan tentang ‘ukuran pemerintah’ yang tepat untuk kemakmuran ekonomi suatu negara, khususnya negara Muslim, berkaitan erat dengan persoalan optimalisasi 'peran negara'. Artikel ini bertujuan mengkaji hubungan antara ukuran pemerintah dengan pertumbuhan ekonomi dengan menggunakan metode ekonometrik yang lebih efisien dengan sampel negara-negara Muslim selama kurun waktu tertentu. Artikel ini juga bertujuan untuk mengidentifikasi ukuran optimal pemerintah (peran negara) yang dapat memaksimalkan pertumbuhan ekonomi negara-negara dengan menerapkan estimasi panel statis dan dinamis dengan menggunakan 'growth model' yang telah banyak digunakan dalam pengukuran dampak ukuran pemerintah terhadap pertumbuhan ekonomi. Hasil kajian menunjukkan bahwa ukuran pemerintah yang kecil dapat memberikan kontribusi lebih besar pada pertumbuhan ekonomi. Hasil kajian lebih meyakinkan dengan menggunakan fixed-effect model dibandingkan dengan model statis atau dinamis.

scholarly journals Wagner's Law in Sri Lanka: An Econometric Analysis

2012 ◽  
Vol 2012 ◽  
pp. 1-8 ◽  
Author(s):  
Mayandy Kesavarajah
Keyword(s):  
Economic Growth ◽  
Sri Lanka ◽  
Empirical Evidence ◽  
Public Expenditure ◽  
Special Focus ◽  
Annual Data ◽  
Sri Lankan ◽  
Wagner’S Law ◽  
Long Run ◽  
Wagner's Law

This study examines whether there is empirical evidence that Wagner's law holds in the Sri Lankan economy using time series annual data over the period from 1960 to 2010 for Sri Lanka, applying cointegration and error correction modeling (ECM) techniques. In particular, this study keeps a special focus to examine the validity of six versions of Wagner's hypothesis, which support the existence of long-run relationship between public expenditure and economic growth. The empirical evidence of this study indicates that while there prevail is a short-run relationship between public expenditure and economic growth, the long-run results showed no strong evidence in support of the validity of the Wagner’s law for Sri Lankan economy. Granger causality analysis also confirms this result. Therefore, the findings of this study pave to broaden this study further for a deeper understanding about the relationship between public expenditure and economic growth by giving more attention on individual items of public expenditure and by including more macroeconomic variables in the econometric model using different methodology in future.

scholarly journals The South African tax mix and economic growth

2014 ◽  
Vol 8 (2) ◽  
pp. 201-210 ◽  
Author(s):  
AH De Wet ◽  
NJ Schoeman ◽  
SF Koch
Keyword(s):  
Economic Growth ◽  
Fiscal Policy ◽  
South African ◽  
Government Spending ◽  
Government Expenditure ◽  
Indirect Taxation ◽  
Size Of Government ◽  
Direct Taxation ◽  
The Impact ◽  
Direct Tax

The research reported in this paper suggests that government fiscal policy can influence economic growth through alterations in the tax mix and the overall size of government spending.   The authors estimate the impact on economic growth of changes in fiscal policy via government expenditure, direct taxation and indirect taxation.  The results show that economic growth is negatively affected by increases in the size of government, as reflected in its expenditures and direct tax revenues, although significant indirect tax effects are not found.     

scholarly journals ANALYSIS OF FACTORS AFFECTING POVERTY IN THE PROVINCE OF THE BANGKA BELITUNG ISLANDS

2021 ◽  
Vol 6 (2) ◽  
pp. 188
Author(s):  
Anggi Aprillia ◽  
Rulyanti Susi Wardhani ◽  
Muhammad Faisal Akbar
Keyword(s):  
Economic Growth ◽  
Income Inequality ◽  
Unemployment Rate ◽  
Government Spending ◽  
Quantitative Research ◽  
Government Expenditure ◽  
Analytical Tool ◽  
Standard Of Living ◽  
Factors Affecting ◽  
Simultaneous Test

Poverty is a condition of the inability of individuals or community groups to meet basic needs such as housing, clothing and food to ensure a certain standard of living. If a country is able to reduce the level of poverty, then the welfare of the community can be realized through the implementation of quality development. This study aims to analyze and determine the effect of economic growth, income inequality, government spending and the open unemployment rate on poverty. This research used quantitative research. The analytical tool used in this study is multiple linear regression with panel data. The results showed that partially the economic growth had a negative and significant effect on poverty, government spending had a negative and insignificant effect on poverty and income inequality and open unemployment had a positive and significant effect on poverty in the Province of the Bangka Belitung Islands. Meanwhile, the results of the simultaneous test show that overall the variables of economic growth, income inequality, government spending and the open unemployment rate have a positive and significant effect on poverty in the Province of the Bangka Belitung Islands.Keywords: Economic Growth, Income Inequality, Government Expenditure, Unemployment Rate, PovertyJEL: O40, 015, H53, I30

scholarly journals Corruption, Size of Government, and Economic Growth

2015 ◽  
pp. 155-175
Author(s):  
Qaiser Munir
Keyword(s):  
Economic Growth ◽  
Linear Relationship ◽  
Government Size ◽  
Size Of Government ◽  
Economic Progress ◽  
Threshold Autoregression ◽  
Long Run ◽  
Non Linear ◽  
The Government ◽  
Relationship Of

A big size government fosters corruption, which can lead to inefficiencies and resource costs that impede economic progress. In this chapter, it is argued that much of the previous studies have focused only on detecting the linear effects of corruption on growth. This study, therefore adopts the Threshold Autoregression (TAR) approach by using an annual panel data of 100 countries during 1990-2012 to evaluate any existence of a non-linear relationship. This study presents evidence that suggests the existence of a hump shaped (nonlinear) relationship between corruption and long-run economic growth. When the government size is small (11.518%), corruption positively affects economic growth. Whereas, when the government final consumption expenditure (% of GDP) is larger than 19.027%, corruption negatively affects economic growth. Furthermore, the result indicates that a non-linear relationship of the ‘Armey curve' exists in our panel of countries. Thus, a government should investigate whether government size is over-expanding or not when designing its public finance policy.

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