The Relation of Public Expenditures with Economic Growth in OECD Countries

Abstract

Many empirical studies have been conducted to analyse the relationship between public spending and economic growth. In the literature review for the analysis of this relationship, the studies are concentrated around Keynes and Wagner Hypothesis. Wagner argues that this relationship is from economic growth to public expenditures while Keynes argues that it is from public expenditures to economic growth. In this study, Keynes's hypothesis is examined through the use ofthe variables of economic growth, public expenditures, inflation and unemployment for some OECD member countries. The findings performed with the panel unit root and panel cointegration tests under the cross-sectional dependency in the analyses are as follows. The variables that make up the study are cointegrated among themselves. In the long-term analysis, a significant relationship was not obtained, which indicates that public expenditures and inflation affect economic growth. It is concluded that unemployment negatively affects economic growth. In the short run, it was found that both public expenditures and inflation positively affected economic growth, while unemployment had a negative effect. In the study, it is concluded that the Keynes Hypothesis is valid for DEU, CZE, GBR, HUN and SVK, but not valid for BEL, FIN and IRL.

Public spending and economic growth: Evidence from the Western Balkans

“…This shows that government spending has an effect on economic growth. Both public spending and inflation were found to have a beneficial influence on short-term economic growth (Ertekin & Bulut, 2021). Srinivasan (2013) discovered a direct relationship between public spending and economic growth from 1973 to 2012, demonstrating that total public spending has a positive impact on economic growth, which Simiyu (2015) supported by evaluating the correlation of public spending and economic growth using the Granger causality test.…”

“…The findings of these models enable the use of dynamic data for comparison study over multiple periods and years, with implications for the economy and other areas. The use of the Ordinary Least Squares (OLS) econometric model allows for the control of factors that are fundamentally difficult to assess using traditional and simpler methods (Ertekin & Bulut, 2021).…”

Wagner's Law vs. Keynesian Hypothesis: Empirical Evidence for G20 Countries

“…Olanrewaju and Funlayo [77] concluded that as well as Wagner's Law is valid in some countries in the panel, Keynes Hypothesis is valid in other countries also. Wu et al [78], Altıner [13], Altınok and Arslan [79], Sagdic et al [80], Nusair and Olson [3], and Ertekin and Bulut [81], who uses panel data analysis in their studies, had reached findings in favour of both approaches. However, Kuckuck [82] reached contrasting results in his research.…”