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

Firouz Fallahi and Jalal Montazeri Shoorkchali

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Government size; Economic growth; Smooth transition regression, Armey curve, Greece (search for similar items in EconPapers)
JEL-codes: C22 H50 O40 (search for similar items in EconPapers)
Date: 2012-07-23
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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