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Is There Asymmetry in the Relationship Between Government Consumption Dynamics and Economic Activity? Evidence From G7 Economies

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  • Senekovič Marko

    (PhD Student at the University of Maribor, Faculty of Economics and Business, Slovenia)

Abstract

In this paper, based on a quarterly dataset of G7 countries with the application of a nonlinear ARDL model we test for the presence of a short-run and long-term asymmetry in the relationship between government spending and economic activity. The main aim of this study is to analyze the relationship between government spending and economic activity in two separate scenarios, first, in periods when government spending increases and, second, in periods when government spending decreases. Our key findings are, first, the linear model that produces a positive relationship between government consumption and economic activity. Second, in the nonlinear model, more than half of the short-run and long-run coefficients are statistically significant. Third, short-run and long-run asymmetry are detected in four out of seven cases with recognized short-run asymmetry also in the remaining three cases based on graphical analysis. Finally, a negatively inclined short-run asymmetry is detected. The results thus imply a stronger output effect in periods of declining dynamics in government consumption. Future research should be focused on broadening the sample countries and model by adding additional variables.

Suggested Citation

  • Senekovič Marko, 2021. "Is There Asymmetry in the Relationship Between Government Consumption Dynamics and Economic Activity? Evidence From G7 Economies," Naše gospodarstvo/Our economy, Sciendo, vol. 67(4), pages 1-12, December.
    • Handle: RePEc:vrs:ngooec:v:67:y:2021:i:4:p:1-12:n:3
    DOI: 10.2478/ngoe-2021-0018
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    References listed on IDEAS

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    1. Ilzetzki, Ethan & Mendoza, Enrique G. & Végh, Carlos A., 2013. "How big (small?) are fiscal multipliers?," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 239-254.
    2. Wee Chian Koh, 2017. "Fiscal multipliers: new evidence from a large panel of countries," Oxford Economic Papers, Oxford University Press, vol. 69(3), pages 569-590.
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    More about this item

    Keywords

    fiscal policy; nonlinear ARDL model; G7 countries;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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