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Government Size and Economic Growth in Turkey: A Threshold Regression Analysis

Pelin Varol Iyidogan and Taner Turan

Prague Economic Papers, 2017, vol. 2017, issue 2, 142-154

Abstract: We examine the relationship between the government size and economic growth by using threshold regression model and quarterly data over the period 1998:1-2015:1 for Turkey. Our results provide a strong evidence for the existence of a non-linear relationship. The estimated threshold levels, as a percentage of GDP, are 16.5 for the government total expenditures, 12.6 for consumption expenditures and 3.9 for investment expenditures. We find that an increase in the government size leads to a significant rise (decline) in economic growth rate when the government size is below (above) the threshold level, confirming the predictions of Armey curve. Our findings have a clear policy implication: since the realized government consumption and total expenditures are well above the estimated threshold levels, a reduction in the government size would boost the growth rate.

Keywords: threshold estimations; non-linearity; government size; economic growth (search for similar items in EconPapers)
JEL-codes: E60 E62 H00 H50 (search for similar items in EconPapers)
Date: 2017
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