Revisiting the Growth-Promoting Optimum Size of the Government

Jain, Megha; Nagpal, Aishwarya

doi:10.4324/9781003026495-4

Cited by 5 publications

(6 citation statements)

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“…(Kim et al , 2018; Forte and Magazzino, 2011, 2016; Dalena and Magazzino, 2012; Magazzino, 2013, 2014; Hajamini and Falahi, 2018). These studies support an inverted U-shaped curve relationship between government spending and economic growth, herein referred to as the BARS curve after (Barro, 1990; Armey, 1995; Rahn and Fox, 1996; Scully, 1995). In other words, these studies suggest that there is a valid tipping point in the government expenditure-growth nexus, beyond which the effect of government expenditure on economic growth is negative.…”

Section: Introductionmentioning

confidence: 76%

An empirical analysis of government interventions in ECOWAS: evidence from dynamic panel threshold

Olaoye

Noman

Abanikanda

2021

IJOEM

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PurposeThe study examines whether the growth effect of government spending is contingent on the level of institutional environment prevalent in Economic Community of West African States (ECOWAS).Design/methodology/approachThe study adopts the more refined and more appropriate dynamic threshold panel by Seo and Shin (2016) and made applicable be Seo et al. (2019). The technique models a nonlinear asymmetric dynamics and cross-sectional heterogeneity simultaneously in a dynamic threshold panel data framework.FindingsThe results show that there is a threshold effect in the government spending-growth relationship. Specifically, the authors found that the impact of government spending on economic growth is positive and statistically significant only above a certain threshold level of institutional development. Below that threshold, the effect of government spending on growth is insignificant and negative at best. The findings suggest that government spending-growth nexus is contingent on the level of Institutional quality.Originality/valueUnlike previous studies that adopt the linear interaction model which pre-impose a priori conditional restrictions, this study adopts the dynamic threshold panel framework which allows the lagged dependent variable and endogenous covariates.

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Section: Introductionmentioning

confidence: 76%

An empirical analysis of government interventions in ECOWAS: evidence from dynamic panel threshold

Olaoye

Noman

Abanikanda

2021

IJOEM

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“…Until some threshold, increasing government spending may support economic growth, but after that point, the costs will outweigh the benefits and dampen economic growth. After Barro (1990), Armey (1995), Rahn and Fox (1996), and Scully (1994) made significant contributions to this hypothesis. The curve depicting this non-linear relationship has often been called the BARS curve after their names.…”

Section: Georgeta Et Al (2021) Included the Governance Indi-mentioning

confidence: 99%

Fiscal policy and economic growth in resource-rich country: Empirical evidence from Azerbaijan

Kalbiyev,

Seyfullali

2024

Public and Municipal Finance

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The relationship between fiscal policy and economic growth is one of the longest-lived economic discourses. In this context, countries with emerging institutions and resource-based economies are of particular interest. Therefore, the Azerbaijani economy was chosen as the object of study. The purpose of this paper is to analyze the relationship between fiscal policy and economic growth in Azerbaijan and analyze the possible existence of the BARS curve relationship in Azerbaijan. The study covers quarterly data for 2005Q1–2023Q2. The autoregressive distributed lag (ARDL) bound test is used to evaluate the relationship between fiscal variables and economic growth (both general and non-oil), as well as the BARS curve relationship. The analysis revealed a positive association between government spending and both overall and non-oil economic growth over the long term. On average, a 1% rise in government spending corresponds to a 0.6% increase in economic growth. Conversely, in the short term, a negative relationship is observed between government spending and economic growth, encompassing both the general and non-oil economy. Notably, no statistical evidence supporting the presence of the BARS curve relationship in Azerbaijan was identified. Amid the circumstances of decreasing oil production in Azerbaijan, these results put more emphasis on the importance of increasing the productivity of government spending.

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“…Certainly, the study of Armey [1995] provided an empirical basis for the existence of growth-maximizing government size. Armey [1995] has been followed up by many others including Rahn and Fox [1996], Vedder and Gallaway [1998], Gwartney et al [1998], Scully [1998Scully [ , 2003, Pevcin [2004], Facchini and Melki [2013], Forte and Magazzino [2011], El Husseiny [2019 on an empirical basis. All these studies attempt to establish a relationship between government size (measured as the share of government expenditure in GDP) and growth and provide convincing evidence for Barro's [1990] growth Laffer curve argument, which points to the existence of a hump-shaped curve relationship between government size and growth.…”

Section: Empiricsmentioning

confidence: 99%

“…Therefore, even if the efficiency of government spending does not fall, it is very likely that the disincentive effect of taxation, together with the potential crowding-out effect of domestic borrowing, will harm growth as financial resources are transferred from the private sector to the government sector. The diminishing marginal utility of further government spending and the increasing distortions from taxation typically lead to an inverted U-or S-shaped nonlinear relationship between government size and growth (Facchini and Melki, 2013), commonly referred to in the literature as the "BARS curve" (see Barro [1989 and, Armey [1995], Rahn and Fox [1996], Scully [1998 and).…”

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confidence: 99%

New insights into the growth-maximizing size of government: evidence and implications for Turkey

Şen

Kaya

Durucan

2023

Econ Change Restruct

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This study provides new insights into the growth-maximizing size of government. Unlike the previous literature, which traditionally uses a single measure, government expenditure as a share of GDP, to measure the size of government, in this study we use multiple measures to measure it. Considering each of these measures, we first attempt to uncover the potential nonlinear relationship between government size and growth, and we then estimate the thresholds of government size that maximize growth. To this end, we use an appropriate econometric specification, namely the threshold autoregressive (TAR) model proposed by Hansen [1996Hansen [ , 2000, and apply it to Turkey's annual time-series data covering a fairly broad period ranging from 1974 to 2019. Overall, we arrive at the following key result: the size of government is not linearly correlated with growth, confirming the existence of a growth-maximizing threshold for each measure of government size, beyond which growth tends to slow down as government size continues to increase. More specifically, the results show that the range of estimated growth-maximizing size of government is between 4.28% and 15.19%, depending on how government size is defined or measured. Policymakers can take these different thresholds into account when designing their policies.

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Revisiting the Growth-Promoting Optimum Size of the Government

Cited by 5 publications

References 0 publications

An empirical analysis of government interventions in ECOWAS: evidence from dynamic panel threshold

An empirical analysis of government interventions in ECOWAS: evidence from dynamic panel threshold

Fiscal policy and economic growth in resource-rich country: Empirical evidence from Azerbaijan

New insights into the growth-maximizing size of government: evidence and implications for Turkey

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