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Government expenditure and economic growth in the European Union countries

Author

Listed:
  • Gitana Dudzevičiūtė
  • Agnė Šimelytė
  • Aušra Liučvaitienė

Abstract

Purpose - The purpose of this paper is to provide more reliable estimates of the relationship between government spending and economic growth in the European Union (EU) during the period of 1995-2015. Design/methodology/approach - The methodology consisted of several different stages. In the first stage for an assessment of dynamics of government spending and economic growth indicators over two decades, descriptive statistics analysis was employed. Correlation analysis helped to identify the relationships between government expenditures (GEs) and economic growth. In the third stage, for modeling the relationship and the estimation of causality between GE and economic growth, Granger causality testing was applied. Findings - The research indicated that eight EU countries have a significant relationship between government spending and economic growth. Research limitations/implications - This study has been bounded by general GE and economic growth only. The breakdowns of general GE on the basis of the activities they support have not been considered in this paper, which is the main limitation of the research. Despite the limitation, it might be maintained that the research highlights key relationships in the EU countries. Originality/value - These insights might be useful for policy makers. In countries with unidirectional causality running from GE to economic growth, the government can employ expenditure as a factor for growth. The governments should ensure that resources are properly managed and efficiently allocated to accelerate economic growth in the countries with unidirectional causality from GDP to GE.

Suggested Citation

  • Gitana Dudzevičiūtė & Agnė Šimelytė & Aušra Liučvaitienė, 2018. "Government expenditure and economic growth in the European Union countries," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 45(2), pages 372-386, February.
    • Handle: RePEc:eme:ijsepp:ijse-12-2016-0365
    DOI: 10.1108/IJSE-12-2016-0365
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    2. Jiranyakul, Komain, 2020. "Government Expenditures and Economic Growth: A Cointegration Analysis for Thailand under the Floating Exchange Rate Regime," MPRA Paper 109054, University Library of Munich, Germany.

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    More about this item

    Keywords

    European Union; Economic growth; Granger causality; Government expenditure; C10; H50; O10;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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