Government Consumption, Government Debt and Economic Growth

Abstract

This paper analyzes the effects of government consumption and government debt on long-run economic growth by considering the economic characteristics of the countries investigated. Three alternative data sets are used for robustness, where samples cover as much as 84 countries over the period between 1960 and 2014, including both developed and developing markets. Linear regressions reveal that government consumption has a much bigger reducing impact on long-run growth compared to the negative (and sometimes insignificant) effects of government debt, independent of the data set considered. Nonlinear analyses further show that such effects are highly affected by the economic characteristics of the countries investigated. The results are shown to be robust to the consideration of any endogeneity problem by using state-of-the-art statistical tests.