Politická ekonomie 2023, 71(6):709-729 | DOI: 10.18267/j.polek.1406

Public Expenditure and Economic Growth: Empirical Evidence for the EU

Francisco J. Delgado ORCID...
Department of Economics, University of Oviedo, Spain

The relationship between government size and economic growth is a major task in the economic literature and this paper is devoted to public expenditure. We empirically study the relationship between public expenditure and economic growth in the European Union. Our approach consists on a quantile regression for the period 2004-2019. The results show a negative and significant impact of total public expenditure on economic growth, with a higher effect in the high tail of the growth distribution. In a more detailed analysis, the study of three large public expenditures, considering the percentage of total public expense, reveals an insignificant effect of health, and a negative impact of education and social protection, higher in the low tail of the growth distribution. Our findings allow better understanding of the effects of public policies on development beyond linear approaches.

Keywords: Public expenditure, growth, European Union, quantile regression
JEL classification: C21, H50, O47

Received: December 23, 2022; Revised: June 5, 2023; Accepted: July 10, 2023; Prepublished online: November 21, 2023; Published: December 19, 2023  Show citation

ACS AIP APA ASA Harvard Chicago Chicago Notes IEEE ISO690 MLA NLM Turabian Vancouver
Delgado, F.J. (2023). Public Expenditure and Economic Growth: Empirical Evidence for the EU. Politická ekonomie, 71(6), 709-729. doi: 10.18267/j.polek.1406
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Afonso, A., González Alegre, J. (2011). Economic growth and budgetary components. A panel assessment for the EU. Empirical Economics, 41, 703-723, https://doi.org/10.1007/s00181-010-0400-9 Go to original source...
    2. Afonso, A., Monteiro, S., Thompson, M. (2014). Innovation economy, productive public expenditure and economic growth. Metroeconomica, 65(4), 671-689, https://doi.org/10.1111/meca.12054 Go to original source...
    3. Agell, J., Lindh, T., Ohlsson, H. (1997). Growth and the public sector: a critical review essay. European Journal of Political Economy, 13(1), 33-52, https://doi.org/10.1016/S0176-2680(96)00031-6 Go to original source...
    4. Agenor, P. R., Neanidis, K. C. (2011). The allocation of public expenditure and economic growth. The Manchester School, 79(4), 899-931, https://doi.org/10.1111/j.1467-9957.2011.02197.x Go to original source...
    5. Aghion, P., Caroli, E., Garcia-Penalosa, C. (1999). Inequality and economic growth: the perspective of the new growth theories. Journal of Economic Literature, 37(4), 1615-1660, https://doi.org/10.1257/jel.37.4.1615 Go to original source...
    6. Al-Yousif, Y. K. (2008). Education expenditure and economic growth: some empirical evidence from the GCC countries. The Journal of Developing Areas, 42(1), 69-80, https://www.jstor.org/stable/40376194 Go to original source...
    7. Angelopoulos, K., Economides, G., Kamman, P. (2007). Tax-spending policies and economic growth: theoretical predictions and evidence from the OECD. European Journal of Political Economy, 23(4), 885-902, https://doi.org/10.1016/j.ejpoleco.2006.10.001 Go to original source...
    8. Angelopoulos, K., Philippopoulos, A., Tsionas, E. (2008). Does public sector efficiency matter? Revisiting the relation between fiscal size and economic growth in a world sample. Public Choice, 137(1/2), 245-278 , https://www.jstor.org/stable/40270861 Go to original source...
    9. Apergis, N., Christou, C., Hassapis, C. (2013). Convergence in public expenditures across EU countries: evidence from club convergence. Economics & Finance Research, 1(1), 45-59, https://doi.org/10.1080/21649480.2013.862735 Go to original source...
    10. Aschauer, D. (1989). Is public expenditure productive? Journal of Monetary Economics, 23(2), 177-200, https://doi.org/10.1016/0304-3932(89)90047-0 Go to original source...
    11. Atkinson, A. B. (1995). The welfare state and economic performance. National Tax Journal, 48(2), 171-198, https://www.jstor.org/stable/41789 Go to original source...
    12. Baier, S. L., Glomm, G. (2001). Long-run growth and welfare effects of public policies with distortionary taxation. Journal of Economic Dynamics and Control, 25(12), 2007-2042, https://doi.org/10.1016/S0165-1889(00)00017-8 Go to original source...
    13. Bajo-Rubio, O. (2000). A further generalization of the Solow growth model: the role of the public sector. Economics Letters, 68(1), 79-84, https://doi.org/10.1016/S0165-1765(00)00220-2 Go to original source...
    14. Barro, R. J. (1990). Government spending in a simple model of endogenous growth. Journal of Political Economy, 98(5), 103-125, Go to original source...
    15. Barro, R. J., Sala-I-Martin, X. (1992). Public finance in models of economic growth. The Review of Economic Studies, 59(4), 645-661, https://doi.org/10.2307/2297991 Go to original source...
    16. Becker, G. S., Glaeser, E. L., Murphy, K. M. (1999). Population and economic growth. The American Economic Review, 89(2), 145-149, https://www.jstor.org/stable/117096 Go to original source...
    17. Bellettini, S., Ceroni, C. B. (2000). Social security expenditure and economic growth: An empirical assessment. Research in Economics, 54(3), 249-275, https://doi.org/10.1006/reec.2000.0231 Go to original source...
    18. Blanco, F. A., Delgado, F. J. (2019). Taxation and economic growth in the European Union: a quantile approach. Revista de Economía Mundial, 51, 79-100. Go to original source...
    19. Blankenau, W. F., Simpson, N. B. (2004). Public education expenditures and growth. Journal of Development Economics, 73(2), 583-605, https://doi.org/10.1016/j.jdeveco.2003.05.004 Go to original source...
    20. Bleaney, M., Gemmell, N., Kneller, R. (2001). Testing the endogenous growth model: public expenditure, taxation and growth over the long run. Canadian Journal of Economics, 34(1), 36-57, https://doi.org/10.1111/0008-4085.00061 Go to original source...
    21. Bose, N., Haque, M. E., Osborn, D. R. (2007). Public expenditure and economic growth: A disaggregated analysis for developing countries. The Manchester School, 75(5), 533-556, https://doi.org/10.1111/j.1467-9957.2007.01028.x Go to original source...
    22. Buchinsky, M. (1998). Recent advances in quantile regression models: a practical guideline for empirical research. The Journal of Human Resources, 33(1), 88-126, https://www.jstor.org/stable/146316 Go to original source...
    23. Carboni, O. A., Medda, G. (2011). Government spending and growth in a neoclassical model. Mathematics and Financial Economics, 4(4), 269-285, https://doi.org/10.1007/s11579-011-0045-2 Go to original source...
    24. Cashin, P. (1995). Government spending, taxes, and economic growth. Staff Papers - International Monetary Fund, 42, 237-269, https://www.jstor.org/stable/3867572 Go to original source...
    25. Castro, V. (2018). Functional components of public expenditure, fiscal consolidations, and economic activity. Economics & Politicsof Governance, 30(1), 124-150. Go to original source...
    26. Cole, M. A., Neumayer, E. (2006). The impact of poor health on total factor productivity. The Journal of Development Studies, 42(6), 918-938, https://doi.org/10.1080/00220380600774681 Go to original source...
    27. Conte, M. A., Darrat, A. F. (1988). Economic growth and the expanding public sector: A re-examination. The Review of Economics and Statistics, 70(2), 322-330, https://www.jstor.org/stable/192831 Go to original source...
    28. Dao, M. Q. (2012). Government expenditure and growth in developing countries. Progress in Development Studies, 12(1), 77-82, https://doi.org/10.1177/146499341101200105 Go to original source...
    29. Delgado, F. J. (2021). On the determinants of fiscal decentralization: Evidence from the EU. Amfiteatru Economic, 23(56), 206-220, https://doi.org/10.24818/EA/2021/56/206 Go to original source...
    30. Delgado, F. J., Presno, M. J. (2023). Evolution of fiscal decentralisation in OECD countries: a club convergence analysis. Amfiteatru Economic, 25(63), 558-574, https://doi.org/10.24818/EA/2023/63/558 Go to original source...
    31. Devarajan, S., Swaroop, V., Zou, H.-F. (1996). The composition of public expenditure and economic growth. Journal of Monetary Economics, 37(2), 313-344, https://doi.org/10.1016/S0304-3932(96)90039-2 Go to original source...
    32. Easterly, W. and S. Rebelo (1993). Fiscal policy and economic growth: an empirical investigation. Journal of Monetary Economics, 32(3), 417-458, https://doi.org/10.1016/0304-3932(93)90025-B Go to original source...
    33. Égert, B. (2015). Public debt, economic growth and nonlinear effects: Myth or reality? Journal of Macroeconomics, 43, 226-238, https://doi.org/10.1016/j.jmacro.2014.11.006 Go to original source...
    34. Engen, E. M., Skinner, J. (1992). Fiscal policy and economic growth. NBER Working Paper No. 4223, https://doi.org/10.3386/w4223 Go to original source...
    35. Ferreiro, J., Garcia del Valle, M., Gómez, C. (2012). Similarities and differences in the composition of public expenditures in the European Union. Journal of Economic Issues, 46(3), 633-660, https://doi.org/10.2753/JEI0021-3624460303 Go to original source...
    36. Ferreiro, J., Carrasco, C. A., Gómez, C. (2014). Convergence of public expenditures and implementation of a single model of public finances in the European Union. Revista de Economía Mundial, 37, 75-102. Go to original source...
    37. Fölster, S., Henrekson, M. (1999). Growth and the public sector: a critique of the critics. European Journal of Political Economy, 15(2), 337-358, https://doi.org/10.1016/S0176-2680(99)00010-5 Go to original source...
    38. Fölster, S., Henrekson, M. (2001). Growth effects of government expenditure and taxation in rich countries. European Economic Review, 45(8), 1501-1520, https://doi.org/10.1016/S0014-2921(00)00083 Go to original source...
    39. Gómez-Puig, M., Sosvilla-Rivero, S. (2017). Heterogeneity in the debt-growth nexus: Evidence from EMU countries. International Review of Economics & Finance, 51, 470-486, https://doi.org/10.1016/j.iref.2017.07.008 Go to original source...
    40. Gregoriou, A., Ghosh, S. (2009). The impact of government expenditure on growth: empirical evidence from a heterogeneous panel. Bulletin of Economic Research, 61(1), 95-102, https://doi.org/10.1111/j.1467-8586.2008.00297.x Go to original source...
    41. Gupta, S., Clemens, B., Baldacci, E., et al. (2005). Fiscal policy, expenditure composition, and growth in low-income countries. Journal of International Money and Finance, 24(3), 441-463, https://doi.org/10.1016/j.jimonfin.2005.01.004 Go to original source...
    42. Halici-Tülüce, N. S., Dogan, İ., Dumrul, C. (2016). Is income relevant for health expenditure and economic growth nexus? International Journal of Health Economics and Management, 16, 23-49, https://doi.org/10.1007/s10754-015-9179-8 Go to original source...
    43. Hansson, P., Henrekson, M. (1994). A new framework for testing the effect of government spending on growth and productivity, Public Choice, 81, 381-401, https://doi.org/10.1007/BF01053239 Go to original source...
    44. Henrekson, M. (1993). Wagner's law - A spurious relationship? Public Finance, 46(3).
    45. Inekwe, J. N. (2015). The contribution of R&D expenditure to economic growth in developing economies. Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, 124(3), 727-745, https://doi.org/10.1007/s11205-014-0807-3 Go to original source...
    46. Irmen, A., Kuehnel, J. (2009). Productive government expenditure and economic growth. Journal of Economic Surveys, 23(4), 692-733, https://doi.org/10.1111/j.1467-6419.2009.00576.x Go to original source...
    47. Jaén-García, M. (2018). Wagner's law: a revision and a new empirical estimation. Hacienda Publica Española / Review of Public Economics, 224(1), 13-35, https://doi.org/10.1086/261727 Go to original source...
    48. Johnson, D. G. (1999). Population and economic development. China Economic Review, 10(1), 1-16, https://doi.org/10.1016/S1043-951X(99)00002-4 Go to original source...
    49. King, R. G., Rebelo, S. (1990). Public policy and economic growth: developing neoclassical implications. Journal of Political Economy, 98(5), 126-150, Go to original source...
    50. Kneller, R., Bleaney, M. F., Gemmell, N. (1999). Fiscal policy and growth: evidence from OECD countries. Journal of Public Economics, 74(2), 171-190, https://doi.org/10.1016/S0047-2727(99)00022-5 Go to original source...
    51. Koenker, R. (2017). Quantile regression: 40 years on. Annual Review of Economics, 9, 155-176, https://doi.org/10.1146/annurev-economics-063016-103651 Go to original source...
    52. Koenker, R., Basset, G. (1978). Regression quantiles. Econometrica, 46(1), 33-50, https://doi.org/10.2307/1913643 Go to original source...
    53. Koenker, R., Hallock, K. F. (2001). Quantile regression. An introduction. Journal of Economic Perspectives, 15(4), 143-156, https://doi.org/10.1257/jep.15.4.143 Go to original source...
    54. Kolluri, B. R., Panik, M. J., Wahab, M. S. (2000). Government expenditure and economic growth: evidence from G7 countries. Applied Economics, 32(8), 1059-1068, https://doi.org/10.1080/000368400322110 Go to original source...
    55. Landau, D. (1983). Government expenditure and economic growth: A cross-country study. Southern Economic Journal, 49(3), 783-792, https://doi.org/10.2307/1058716 Go to original source...
    56. Le Van, C., Nguyen-Van, P., Barbier-Gauchard, A., et al. (2019). Government expenditure, external and domestic public debt, and economic growth. Journal of Public Economic Theory, 21(1), 116-134. Go to original source...
    57. Levine, R., Zervos, S. J. (1993). What we have learned about policy and growth from cross-country regressions. American Economic Review, 83(2), 426-430, https://www.jstor.org/stable/2117702
    58. Lin, S. A. Y. (1994). Government spending and economic growth. Applied Economics, 26(1), 83-94, https://doi.org/10.1080/00036849400000064 Go to original source...
    59. Lucas, R. E. Jr. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3-42, https://doi.org/10.1016/0304-3932(88)90168-7 Go to original source...
    60. Mankiw, N. G., Romer, D., Weil, D. N. (1992). A contribution to the empirics of economic growth. The Quarterly Journal of Economics, 107(2), 407-437, https://doi.org/10.2307/2118477. Go to original source...
    61. Martins, S., Veiga, F. J. (2014). Government size, composition of public expenditure, and economic development. International Tax and Public Finance, 21, 578-597, https://doi.org/10.1007/s10797-014-9313-4 Go to original source...
    62. Mushkin, S. J. (1962). Health as an investment. Journal of Political Economy, 70(5), 129-157, http://doi.org/10.1086/258730 Go to original source...
    63. Nijkamp, P., Poot, J. (2004). Meta-analysis of the effect of fiscal policies on long-run growth. European Journal of Political Economy, 20(1), 91-124, https://doi.org/10.1016/j.ejpoleco.2003.10.001 Go to original source...
    64. Piabuo, S. M., Tieguhong, J. C. (2017). Health expenditure and economic growth - a review of the literature and an analysis between the economic community for central African states (CEMAC) and selected African countries. Health Economics Review, 7, 23, https://doi.org/10.1186/s13561-017-0159-1 Go to original source...
    65. Ram, R. (1986). Government size and economic growth: A new framework and some evidence from cross-section and time-series data. American Economic Review, 76(1), 191-203, https://www.jstor.org/stable/1804136
    66. Ramírez-Cedillo, E., López Herrera, F. (2021). Gasto público y crecimiento en América Latina: la ley de Wagner y la hipótesis de Keynes. Investigación Económica, 80(316), 109-132, https://doi.org/10.22201/fe.01851667p.2021.316.76314 Go to original source...
    67. Reinhart, C. M., Rogoff, K. S. (2010). Growth in a time of debt. American Economic Review, 100(2), 573-578, https://doi.org/10.1257/aer.100.2.573 Go to original source...
    68. Romer, P. M. (1986). Increasing returns and long-run growth. Journal of Political Economy, 94(5), 1002-1037, https://www.jstor.org/stable/1833190 Go to original source...
    69. Sato, R. (1963). Fiscal policy in a neo-classical growth model: an analysis of the time required for equilibrating adjustment. Review of Economic Studies, 30(1), 16-23, https://doi.org/10.2307/2296026 Go to original source...
    70. Saunders, P. (1985). Public expenditures and economic performance in OECD countries, Journal of Public Policy, 5(1), 1-21, https://doi.org/10.1017/S0143814X00002865 Go to original source...
    71. Slemrod, J. (1995). What do cross-country studies teach about government involvement, prosperity and economic growth? Brookings Papers on Economic Activity, 26(2), 373-431. Go to original source...
    72. Sokolov-Mladenović, S., Cvetanović, S., Mladenović, I. (2016). R&D expenditure and economic growth: EU28 evidence for the period 2002-2012. Economic Research, 29(1), 1005-1020, http://doi.org/10.1080/1331677X.2016.1211948 Go to original source...
    73. Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70(1), 65-94, https://doi.org/10.2307/1884513 Go to original source...
    74. Sosvilla-Rivero, S., Gómez-Puig, M. (2019). New empirical evidence on the impact of public debt on economic growth in EMU countries. Revista de Economía Mundial, 51, 101-120. Go to original source...
    75. Strauss, T. (2001). Growth and government: Is there a difference between developed and developing countries? Economics of Governance, 2(2), 135-157, https://doi.org/10.1007/PL00011023 Go to original source...
    76. Swan, T. W. (1956). Economic Growth and Capital Accumulation, 32(2): 334-361, https://doi.org/10.1111/j.1475-4932.1956.tb00434.xb Go to original source...
    77. Szarowská, I. (2022). Relationship between government expenditure and economic growth in Visegrad Group. Financial Internet Quarterly, 18(4), 12-22, https://doi.org/10.2478/fiqf-2022-0024 Go to original source...
    78. Tanzi, V., Zee, H. H. (1997). Fiscal policy and long-run growth. International Monetary Fund Staff Papers, 44(2), 179-209, https://doi.org/10.2307/3867542 Go to original source...
    79. Thewissen, S. (2014). Is it the income distribution or redistribution that affects growth? Socio-Economic Review, 12(3), 545-571, https://doi.org/10.1093/ser/mwt019 Go to original source...
    80. Trabelsi, S. (2017). Public education expenditure and economic growth: the educational quality threshold. Région et Développement, 45, 99-112.
    81. Wagner, R. E., Weber, W. E. (1977). Wagner's law, fiscal institutions, and the growth of government. National Tax Journal, 30(1), 59-68. Go to original source...
    82. Waldmann, E. (2018). Quantile regression: a short story on how and why. Statistical Modelling, 18(3-4), 203-218, https://doi.org/10.1177/1471082X18759142 Go to original source...
    83. Yu, K., Lu, Z., Stander, J. (2003). Quantile regression: applications and current research areas. Journal of the Royal Statistical Society: Series D, 52(3), 331-350, https://doi.org/10.1111/1467-9884.00363 Go to original source...

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content