The nexus between public expenditure and inflation in the Mediterranean countries

Cosimo Magazzino

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Public expenditure; inflation; time-series; unit root; cointegration; causality; Mediterranean countries (search for similar items in EconPapers)
JEL-codes: C32 E31 E62 H50 N44 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cwa and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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