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The nexus between public expenditure and inflation in the Mediterranean countries

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  • Magazzino, Cosimo

Abstract

The aim of this article is to assess the empirical evidence of the nexus between public expenditure and inflation for the Mediterranean countries during the period 1970-2009, using a time-series approach. After a brief introduction, a concise survey of the economic literature on this issue is shown, before discussing the data and introducing some econometric techniques. Stationarity tests reveal, generally, that public expenditure/GDP ratio is a I(1) process, while prices index is a I(2) process. Moreover, we find a long-run relationship between the growth of public expenditure and inflation only for Portugal. Furthermore, Granger causality tests results show a short-run evidence of a directional flow from expenditure to inflation for Cyprus, Malta and Spain; of a bidirectional flow for Italy; and from inflation to public expenditure for France. Some notes on the policy implications of our empirical results conclude the paper.

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  • Magazzino, Cosimo, 2011. "The nexus between public expenditure and inflation in the Mediterranean countries," MPRA Paper 28493, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:28493
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    More about this item

    Keywords

    Public expenditure; inflation; time-series; unit root; cointegration; causality; Mediterranean countries;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • N44 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: 1913-

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