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The Impact of Public Expenditures on Economic Growth in Two Very Different Countries: A comparative Analysis of Armenia and Spain

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Abstract

There is considerable controversy in the economic literature concerning whether particular government expenditures have an impact on economic growth. This study analyzes the macroeconomic magnitude of government expenditures in Armenia and Spain and evaluates whether there exists a causal relationship between government expenditures and economic growth and vice versa (Keynesian hypothesis and Wagner’s Law). The study employs VAR tests to analyze annual data for the years 1996-2014. Furthermore, by utilizing Granger causality tests, the study reveals whether the government expenditures are a significant factor in economic growth in short-term perspective. Finally, IRF and FEVD tests are applied to estimate the effect of a change in particular government expenditures on GDP for twelve year time horizon. This study validates the hypothesis that some public expenditures by the Armenian and Spanish public sectors positively contribute to the growth of their economies, while social protection is negatively related to GDP.

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  • Gohar Samvel Sedrakyan & Laura Varela-Candamio, 2017. "The Impact of Public Expenditures on Economic Growth in Two Very Different Countries: A comparative Analysis of Armenia and Spain," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1702, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:ays:ispwps:paper1702
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