Relationship between government expenditure and economic growth in Visegrad Group

Abstract

The goal of the article is to examine the relationship between government expenditure and economic growth in the Visegrad Group in the period 2000-2020. Economic theory as well as published studies have suggested that government expenditure is an important factor in ensuring economic growth, which has been the subject of increased interest in recent years. The article focuses on development of government expenditure, changes in its composition in individual countries during the analyzed period, and also on the direction of influence between these variables. Real GDP time series were cyclically adjusted as well as annual data on government expenditure which were used in compliance with the COFOG international standard. The results suggest that government expenditure and their composition are similar in the Visegrad Group despite the existing differences in the size of the public sector. On the other hand, the cyclicality of government expenditure differs across the countries. Results suggest that countries of the Visegrad Group did not use government expenditure as a stabilizer in the monitored period. Government expenditure was acyclical in Slovakia and procyclical in other countries of the Vise-grad Group. Applied Granger causality methodology provides mixed conclusions about the relationship between government expenditure and economic growth. Nevertheless, unidirectional Granger causality from GDP growth to government expenditure and its divisions predominates, which means that economic growth comes first, followed by government expenditure.

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