Public Expenditures, Economic Growth and Income Inequality: Empirical Evidence from the Commonwealth of Independent States

Abstract

This study has examined the causality relationship between public expenditures, economic growth and income inequality for transition economies called the Commonwealth of Independent States (CIS). In the study, in which the 1998-2019 period was analyzed, the effects of public expenditures on economic growth and income inequality were determined with the bootstrap panel causality test. Bootstrap panel causality test results show that there is a one-way causality relationship from public expenditures to economic growth for Armenia, Belarus, and Kazakhstan. On the other hand, a one-way causality relationship has been determined from public expenditures to income inequality in Belarus and Kazakhstan, and from income inequality to public expenditures in Kyrgyzstan. In Moldova and Russia, however, no causal relationship could be obtained between the variables. The overall evaluation of the findings obtained from the panel causality tests concluded that public expenditures in CIS member countries are closely related to both economic growth and income inequality. CIS member countries need state interventions in order for the market system to fully settle in transition period. However, implementing policies that do not exclude private investments and do not harm the functioning of the market economy should be elaborated during practicing public expenditure policies in these countries in transition.