Government expenditure and economic growth in the EU: long-run tendencies and short-term adjustment

Alfonso Arpaia () and Alessandro Turrini

No 300, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This paper analyses both the long and the short-run relation between government expenditure and potential output in EU countries by means of pooled mean group estimation (Pesaran, Shin, and Smith (1999)). Results show that, over a sample comprising EU-15 countries over the 1970-2003 period, it cannot be rejected the hypothesis of a common long-term elasticity between cyclically-adjusted primary expenditure and potential output close to unity. However, the long-run elasticity decreased considerably over the decades and is significantly higher than unity in catching-up countries, in fast-ageing countries, in low-debt countries, and in countries with weak numerical rules for the control of government spending. The average speed of adjustment of government expenditure to its long-tem relation is 3 years, but there are significant differences across countries. Anglo-Saxon and Nordic countries exhibit in general a faster adjustment process, while adjustment in Southern European countries appears somehow slower.

Keywords: Government expenditure; neutral expenditure stance; government expenditure spped of adjustment; Wagner's law; panel cointegration; pooled mean group estimator; Arpaia; Turrini (search for similar items in EconPapers)
Pages: 52 pages
Date: 2008-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (53)

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Related works:
Working Paper: Government Expenditure and Economic Growth in the EU: Long-Run Tendencies and Short-Term Adjustment (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0300

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