Convergence In Government Spending. An Econometrical Aproach

The government systems differ across and between countries due to different political traditions and historical processes, which explains how each national system is adapted to the economic and social changes throughout time. The share of government spending in GDP and also itsshare in GDP is important in any study of public sector because data are more readily available and easier to quantify than regulatory measures. To establish the degree of convergence in government spending, we focus primarily on presenting one of the concepts that was imposed in the convergence process, namely the beta convergence. We also present some of the theoretical background as fundamental research on fiscal convergence, which is relatively limited. In the empirical part of the analysis, we study the degree of fiscal convergence of the 28 European Union member countries, using as indicator the volume of general government expenditure during 2004 - 2014. We have chosen this time frame as it includes the largest single expansion of the European Union integration process and together with the pre-, the crisis and the post-crisis period. The methodology which is widely used in the professional literature is the one of Barro and Sala-i-Martin, which implies the estimation of an equation regarding economic growth. Therefore, in our paper we employ the Barro and Sala-i-Martin methodology as presented, above in order to determine if there is a convergence process or rather a tendency towards divergence amongst the 28 European countries, taking into consideration the evolution of the general government expenditure. Results indicate that countries with lower initial level of general government expenditure per capita revealed its faster growth rate, while those with higher initial level of general government expenditure per capita exhibited its slower growth rate during the period 2004-2014.