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Government size and economic growth in Greece: A smooth transition approach

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  • Fallahi, Firouz
  • Montazeri Shoorkchali, Jalal

Abstract

This paper tries to verify the existence of the Armey curve, which states that there is an inverted U-shaped relationship between the government size and the economic growth. To that end, we use annual data over 1961-2008 to examine the existence of Armey curve in Greece. Instead of relying on a binomial model, which is very popular in the literature, we use a smooth transition regression (STR). STR models are very flexible and binomial models are considered as a special case of the STR models. The results show that there is a nonlinear connection, i.e., a threshold effect, between the government spending and the growth rate in the Greek economy. However, since the relationship is positive in both regimes, i.e., before and after the threshold, we cannot confirm the existence of Armey curve in the Greek economy.

Suggested Citation

  • Fallahi, Firouz & Montazeri Shoorkchali, Jalal, 2012. "Government size and economic growth in Greece: A smooth transition approach," MPRA Paper 74078, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:74078
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    References listed on IDEAS

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    Cited by:

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    2. Ayad Hicham, 2020. "Government Expenditure and Economic Growth Nexus in Mena Countries: Frequency Domain Spectral Causality Analysis," Economics and Business, Sciendo, vol. 34(1), pages 60-77, January.

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    More about this item

    Keywords

    Government size; Economic growth; Smooth transition regression; Armey curve; Greece;
    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
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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