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Government size, composition of public expenditure, and economic development

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This paper analyzes the effects of government size and of the composition of public expenditure on economic development. Using the system-GMM estimator for linear dynamic panel data models, on a sample covering up to 156 countries and 5-year periods from 1980 to 2010, we find that government size as a percentage of GDP has a quadratic (inverted U-shaped) effect on the growth rate of the Human Development Index (HDI). This effect is especially pronounced in developed and high income countries. We also find that the composition of public expenditure affects development, with the share of five subcomponents exhibiting non-linear relationships with HDI growth.

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  • Susana Martins & Francisco José Veiga, 2013. "Government size, composition of public expenditure, and economic development," NIPE Working Papers 17/2013, NIPE - Universidade do Minho.
    • Handle: RePEc:nip:nipewp:17/2013
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    Cited by:

    1. Luca Agnello & Vitor Castro & João Tovar Jalles & Ricardo M. Sousa, 2017. "Income inequality, fiscal stimuli and political (in)stability," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(3), pages 484-511, June.
    2. Pablo Casas & José L. Torres, 2024. "Government size and automation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(3), pages 780-807, June.
    3. Que, Wei & Zhang, Yabin & Schulze, Günther, 2019. "Is public spending behavior important for Chinese official promotion? Evidence from city-level," China Economic Review, Elsevier, vol. 54(C), pages 403-417.
    4. Jean-Louis Combes & Alexandru Minea & Pegdéwendé Nestor Sawadogo, 2019. "Does the composition of government expenditures matter for sovereign bond spreads' evolution in developing countries?," Working Papers halshs-02019063, HAL.
    5. Guilherme Correa Petry & Ely José Mattos, 2023. "The Effects of Public Expenditure on Municipal Development: A Dynamic Panel Approach," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 165(2), pages 695-714, January.
    6. Tommaso Agasisti & Cristian Barra & Roberto Zotti, 2020. "Public finance, government spending and economic growth: the case of local governments in Italy," Working papers 99, Società Italiana di Economia Pubblica.
    7. Ferris, J. Stephen & Voia, Marcel C., 2015. "The effect of federal government size on private economic performance in Canada: 1870–2011," Economic Modelling, Elsevier, vol. 49(C), pages 172-185.
    8. Vítor Castro & Rodrigo Martins, 2018. "The Electoral Dynamics of Human Development," Journal of Development Studies, Taylor & Francis Journals, vol. 54(1), pages 191-211, January.
    9. B. Venkatraja, 2017. "Addressing the paradox of public expenditure – economic growth nexus: an econometric approach," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 87-108,109-.
    10. Wing Yee Choi, 2021. "A Study on Assessing Government Size, the Composition of Public Spending on Education and Economic Growth in the USA," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 11(1), pages 1-8.
    11. Dan Lupu & Mihai Bogdan Petrisor & Ana Bercu & Mihaela Tofan, 2018. "The Impact of Public Expenditures on Economic Growth: A Case Study of Central and Eastern European Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(3), pages 552-570, February.
    12. Megha Jain & Aishwarya Nagpal & Abhay Jain, 2021. "Government Size and Economic Growth: An Empirical Examination of Selected Emerging Economies," South Asian Journal of Macroeconomics and Public Finance, , vol. 10(1), pages 7-39, June.
    13. Alimi, R. Santos, 2020. "Public Spending and Economic Welfare in ECOWAS Countries: Does Level of Development Matter?," MPRA Paper 99425, University Library of Munich, Germany.
    14. Megbowon Ebenezer T. & Mukarumbwa Peter & Ojo Oloruntimilehin S. & Ojeyinka Titus A., 2023. "Does Urbanization Matter For Poverty Reduction in Nigeria: An Empirical Evidence From Autoregressive Distributed Lag (ARDL) Estimation," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 33(3), pages 1-20, September.
    15. repec:jle:journl:165 is not listed on IDEAS

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    More about this item

    Keywords

    Economic Development; Government Size; Composition of public expenditure; Human Development Index;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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