The Optimal Public Expenditure in Developing Countries

Abstract

Many researchers believe that government expenditures promote economic growth at the first development stage. However, as public expenditure becomes too large, countries will suffer a huge tax burden and tax distortions. This suggests an optimal public expenditure at which economic growth rate is the highest. However, the optimal point would differ across countries because of differences in economic structure. In this present paper, the optimal public expenditure in the developing countries is analyzed. Based on descriptive statistics and regression analysis of 30 developing countries in the period 2004-2013, the findings of this paper are threefold: (i) public expenditure increases along with development level of countries; (ii) the optimal public expenditure is at 19. 375% of GDP; (iii) economic growth has a positive relationship with both investment and labor force, and a negative relationship with urbanization.
 Keywords
 Public expenditure; Economic growth; Fiscal policy; Government size
 References
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