Government Consumption Spending Research Articles

Unwrapping the Intricate Interplay Between Energy Dependency and Macroeconomic Volatility in OECD Countries

While research has explored the connection between oil prices and macroeconomic performance, there is limited understanding of the interaction between overseas energy imports dependency and macroeconomic fluctuations. This work addresses the foregoing study using the augmented mean group (AMG) econometrics technique on panel data of 29 OECD net energy‐importing countries from 2001 to 2021. The long‐run finding unearthed that energy dependency intensifies macroeconomic instability, confirming that relying on overseas energy imports will hamper the smooth functioning of domestic economic machinery in the form of energy supply interruption. Besides energy dependency, this study uses government consumption spending, regulatory quality, and globalisation as control variables in macroeconomic instability function. The long‐run outcomes further depict that government consumption spending and globalisation aggravate macroeconomic instability while regulatory quality reduces it. These findings are further checked by applying the pooled mean group‐autoregressive distributed lag (PMG‐ARDL) method. In conclusion, this study provides policy implications to prioritise domestically produced energy use and diversify energy sources by increasing the share of clean energy in the total energy mix.

Explaining the Nexus Among Government Spending, Real Exchange Rate and Private Sector Investment in Cameroon

The main objective of this study was to investigate the nexus between government spending, real exchange rate, and private investments in Cameroon. The autoregressive distributed lag (ARDL) model was used to address issues of cointegration a time series data drawn from the World Bank WDIs spanning the period 1985-2020. The results reveal that the effect of government spending on consumption has a positive and significant effect on real exchange rate in the short run and a negative and significant effect on real exchange rate in the long run. Military expenditures as a proxy for government spending, have a positive and significant effect on real exchange rate in the long-run and a negative and significant effect in the short-run. More so, real exchange has a negative and significant effect on private sector investments in the long-run. Government consumption spending reinforces the negative effect of the exchange rate on private sector investments in the long-run and mitigates it in the short-run. The implication of these findings is that government consumption spending is key in managing the overall macroeconomic competitiveness of the Cameroon economy, which can incentivise or disincentives private sector investments.

Analyzing the Impact of Fiscal and Monetary Policies on Income Distribution in Central Asian Economies

Abstract This study examines the impacts of macroeconomic policies (i.e. fiscal policy through government consumption spending and total tax revenue, and monetary policy through broad money and real interest rate) along with other regressors such as inflation, Gross Domestic Product (GDP) per capita, remittances, exchange rate, and financial development on income distribution in four Central Asian countries from 1995 to 2020. After conducting unit root tests, the Autoregressive Distributed Lag (ARDL)/Pooled Mean Group (PMG) approach was implemented for empirical analysis. The results show that both fiscal and monetary policies have positive and negative effects on income inequality. Moreover, inflation is found to increase income inequality, while financial development, higher levels of per capita income, and foreign remittances decrease inequality in the panel and individual country analyses. These findings suggest that coordinated policies, along with increased remittances and financial sector development, are needed to reduce income inequality.

Determinants of Private Consumption Expenditure in Australia: ARDL Study

This paper studies the relationship among non-public intake expenditure and independent variables that encompass GDP, population number, interest price, and inflation price in Australia at some point of the duration from 1960 to 2022using the Autoregressive disbursed Lag version (ARDL). The studies additionally ambitions to take a look at the impact of displacement among non-public intake spending and government consumption spending using a model (ARDL). The have a look at determined that there may be an advantageous and enormous dating between personal intake spending and each output and populace in the end. Ultimately, a 1% growth in GDP is related to a zero.8% boom in private consumption pending, and a 1% boom in populace is associated with a zero.3% increase in private consumption spending. However, there is an inverse and tremendous dating among private consumption spending and both interest rate and government consumer spending in the long run. Ultimately, a 1% boom in the interest rate is associated with a 0.2% lower in private consumption spending, and a 1% growth inside the inflation rate is related to a 0.1% lower in private consumption spending. Inside the quick term, there's a high-quality and substantial dating between private consumption spending and both output and population. Within the short term, a 1% increase in GDP is associated with a zero.6% growth in private consumer spending, and a 1% increase in population is associated with a 0.2% growth in private consumer spending. However, there is an inverse dating among private consumer spending and short-time period interest rate, within the quick term, a 1% increase within the interest price is related to a 0.1% decrease in private consumer spending. The findings of this study advise that the imperative financial institution can use financial coverage equipment order to persuade the intermediate objective of monetary policy and have an effect private consumer spending and aggregate demand. Taxes can also be used as one of the fiscal coverage gear to persuade disposable income which will change private client spending and combination demand.

Fiscal policy in times of fiscal stress (or what to do when r > g)

South Africa runs a primary fiscal deficit and the long-term interest rate on government borrowing, r, is greater than the long-term economic growth rate, g. Without intervention, debt will continue to rise until there is a disorderly fiscal stop. Reforms to raise growth have not materialised, leaving fiscal consolidation as the second-best solution. Using a medium-sized, open-economy, fiscal DSGE model of South Africa, we show that the least cost policy is to impose a time-consistent fiscal policy rule with debt-to-GDP as the fiscal anchor and a pre-announced path for government consumption spending as the intermediate operational objective. This result obtains with and without explicit policy coordination between the fiscal and monetary authorities.

Fiscal Prudence and Economic Growth in Asia: the role of Efficient Public Spending

The present research is an attempt to study the role of public sector efficiencies in determining optimal fiscal size of the governments for selected Asian countries. Studying efficiency of public spending is important because efficient government spending leads to improved provision of public services like health, education, infrastructure, and welfare initiatives. Improving public sector efficiency will help to promote transparency and accountability which reduces the chances of corruption and wastage of scarce public resources. Using the panel data for 19 developing countries for years 1996-2022, efficiency augmented optimal size of government expenditures is calculated. Pooled Mean Group technique is employed to calculate the impact of efficiency on growth maximizing levels of government total spending, government consumption spending and government investment spending. Results establish strong impact of efficiency in public expenditures on optimal fiscal size. Other variables enhancing economic growth include capital stock and trade openness, while human capital has negative effects. Public sector efficiencies are found to reduce growth maximizing size of government spending. The optimal size of government total expenditure is estimated to be 25.19 %, while optimal fiscal size for government consumption expenditure and government investment expenditure are 14.04%, and 11.18 % respectively for developing Asian countries.

Business Cycle in Singapore during the Period from 1981 to 2021

Undoubtedly, the concept of the business cycle has become a crucial topic of research, given that the business cycle reflects a nation's economic development and that assessing the business cycle lays the groundwork for a nation to introduce a diverse array of economic policies. This research study aims to evaluate Singapore's business cycles from 1971 to 2021, a span of 41 years. The yearly real GDP and several of its components (private consumption, gross fixed capital formation, and government consumption spending), and CPI were filtered utilizing the Hodrick-Prescott method. Taking the cyclical components of real GDP as the reference cycle and other economic indicators as specific cycles, the author assessed and measured the fluctuations and co-movements between them with the application of standard deviation and correlation coefficient. Last, a few policy suggestions are proposed. There are five main conclusions in this article: (1) Singapore's real GDP is highly susceptible to changes in the international environment; (2) Private consumption, investment, and CPI have a positive and significant correlation with GDP, and investment is of greater relevance to economic growth in the short run; (3) Government expenditure and GDP are negatively correlated; (4) Private investment appears to be a possible cause of business cycle shocks due to the most dramatic fluctuation; and (5) The government of Singapore should encourage private investment so as to boost economic prosperity in the short term, and then promote private consumption to achieve national prosperity in the long run.

Determinants of Private Consumption Expenditure in Egypt: ARDL Study

This paper studies the relationship between private consumption expenditure and independent variables that include GDP, population number, interest rate, and inflation rate in Egypt during the period from 1955 to 2022 using the Autoregressive Distributed Lag Model (ARDL). The research also aims to study the effect of displacement between private consumption spending and government consumption spending using a model (ARDL). The study found that there is a positive and significant relationship between private consumption spending and both output and population in the long run. In the long run, a 1% increase in GDP is associated with a 0.8% increase in private consumption spending, and a 1% increase in population is associated with a 0.3% increase in private consumption spending. However, there is an inverse and significant relationship between private consumer spending and both interest rates and government consumer spending in the long run. In the long run, a 1% increase in the interest rate is associated with a 0.2% decrease in private consumption spending, and a 1% increase in the inflation rate is associated with a 0.1% decrease in private consumption spending. In the short term, there is a positive and significant relationship between private consumption spending and both output and population. In the short term, a 1% increase in GDP is associated with a 0.6% increase in private consumption spending, and a 1% increase in population is associated with a 0.2% increase in private consumption spending. However, there is an inverse relationship between consumer spending Private and short-term interest rate. In the short term, a 1% increase in the interest rate is associated with a 0.1% decrease in private consumption spending. The findings of this study suggest that the central bank can use monetary policy tools in order to influence the intermediate objective of monetary policy and influence private consumer spending and aggregate demand. Taxes can also be used as one of the fiscal policy tools to influence disposable income in order to change private consumer spending and aggregate demand.

How Economic Growth Affects Unemployment in Zambia

Zambia is one of the African countries with abundant resources, both human and mineral. However, due to activities such as increased corruption, gross mismanagement, and anti-government policies, these resources have not been optimally utilized. The study used the model developed by Aktar et al. (2009) in their study titled “The Relationship Between Economic Growth and Unemployment in Turkey: An Empirical Analysis.”. Aktar et al. (2009) regressed unemployment on GDP, exports, and foreign direct investment. The study modified Aktar et al. (2009)'s model, and the specified model was unemployment as a function of GDP, government consumption spending, labour productivity, and the real effective exchange rate. The study used quarterly time series data from 1990 to 2020, which was sourced secondarily from an electronic database. This study used the Augmented Dickey-Fuller (ADF) test for unit root testing to ensure that the time series data used was stationary. The study has established that there is a negative relationship between economic growth and unemployment rate. The nature of the relationship suggests that whenever economic growth is positive, an economy will experience low rates of unemployment. The study has also established that unemployment is also determined by other economic indicators like inflation rate, the exchange rates, FDI and external debt stock. The pursuit of the study was motivated by the growing importance of unemployment and economic growth in developing countries.

Global Value Chain Participation and the Labour Share: Industry‐level Evidence from Emerging Economies

ABSTRACTParticipation in global value chains (GVCs) has been proposed as a central means for emerging economies to develop and technologically upgrade. However, the effects of GVCs on income distribution in the global South remain underexplored. This article presents an econometric analysis of the determinants of the labour share in seven emerging economies for the period 1995–2014. Drawing on industry‐level data from global input‐output tables, the authors focus on how GVC participation — in particular offshoring of production from advanced to emerging economies — affects the labour share of different skill groups within manufacturing and service industries. They also estimate the effects of GVCs on productivity, real wages and the capital–value added ratio, to shed further light on the channels through which GVCs affect the labour share. In both industry groups, findings show that integration into GVCs with advanced economies has a negative effect on the labour share in emerging economies, particularly for medium‐skilled workers. In contrast, higher union density and government consumption spending have positive effects on the labour share. Thus, labour in emerging economies loses out relative to capital as production becomes more integrated across borders.

THE CHANGING STRUCTURE OF GOVERNMENT CONSUMPTION SPENDING

AbstractWe document a secular change in the structure of government consumption spending: Over time the government purchases relatively more private‐sector goods, and relies less on its own production of value added. This process alters the transmission of fiscal policy, by dampening the response of hours, public value added, and the labor share to government spending shocks, while leaving the response of total output unchanged. We rationalize these facts in a general equilibrium model where a decline of the public‐sector relative productivity drives the changing structure of government spending, which in turn modifies the transmission mechanism of government spending shocks.

Public Expenditure and Inflation in Nigeria

This paper empirically examined the effect of public expenditure on inflation in Nigeria in Nigeria from 1981 to 2018. The study adopts descriptive statistics, Co-integration and Error Correction Mechanism techniques for the analysis. The data for the empirical analysis were sourced from secondary sources like CBN Statistical Bulletin. The results of analysis indicated that a long run relationship exists among the variables. Furthermore, the paper revealed that government expenditure on transport and communication (XTCM) has a positive but insignificant relationship with inflation (CPI) at 5 percent level; government expenditure on defense (XDFS) is positive and an insignificant effect on inflation (CPI) in Nigeria; government expenditure on agriculture (XAGR) is negative and an insignificant effect on inflation (CPI) in Nigeria; government expenditure on education (XEDU) is positive and an insignificant effect on inflation (CPI) in Nigeria and government expenditure on health (XHLT) is negative and an insignificant effect on inflation (CPI) in Nigeria. Based on the above findings, the paper recommends as follows: Government should be effective in channeling public funds to productive economic activities, which will enhance price stability in Nigeria. Also, government consumption spending should be well coordinated by all arms of government to prevent “Crowd out” effect on government investment.

Good policy or good luck? Analyzing the effects of fiscal policy and oil revenue shocks in Ecuador

This paper proposes a framework to estimate the effects of exogenous fiscal policy and oil revenue shocks on the macroeconomic activity of price-taking oil producers. We use a structural vector autoregressive model estimated with Bayesian methods and apply it to the Ecuadorian economy. Specifically, we investigate the effects of unanticipated changes in taxes, government consumption spending, government investment spending, and oil revenues on economic activity. The results show that unanticipated expansive fiscal policy either through taxes or government investment can have positive effects on output. However, contrary to most studies in the literature, consumption spending shocks do not significantly affect gross domestic product. We also find that oil revenue shocks influence all the variables in the model, evidencing the vulnerability of the Ecuadorian economy to fluctuations of oil revenues. Historically, oil revenue shocks have been the most important driving force to move output above or below trend.

Government Size, Unemployment and Inflation Nexus in Eight Large Emerging Market Economies

Using annual data for a panel of eight large emerging market economies from 1980 to 2015, we uncover the underlying linkages between government size, unemployment, and inflation by using the panel cointegration and causality frameworks. Overall, our empirical results show that there exists a unidirectional causality running from government size to both unemployment and inflation. The results also tell that the impact of government size on unemployment and inflation varies with how government size is defined or measured. In the case of the ratio of government consumption spending to GDP is chosen as the proxy measure of government size, the causality is one-way and runs from government size to both unemployment and inflation. In addition, indirect taxes are in a significant positive causal association with unemployment, while direct taxes are in a close connection with inflation in the full-country sample.

Empirical analysis of the fuzzy system model of financial expenditure economic effect

In order to analyze the effects of active fiscal policy implemented in China in the context of tax and fee reduction, this paper adopts a dynamic stochastic general equilibrium model with microeconomic foundations to study the economic effects of fiscal policy based on a comprehensive consideration of the previous literature. The empirical study based on Matlab software finds that: first, active fiscal policy has a boosting effect on the economy and can stimulate the level of output to rise in the short run; second, different fiscal policy instruments have different impact mechanisms on economic variables, and the impact paths of government consumption spending and investment spending are completely inconsistent; third, the economic effects of government tax cut policies are better than government spending policies, and structural tax cut policy is softer than universal tax cuts; fourth, expansionary government investment spending has the most significant effect on output stimulation and has a very long-term impact on output level. Through the above model analysis, this paper argues that fiscal policy should play a greater role in supporting industrial restructuring, giving full play to the long-term advantages of the interest rate effect on the basis of satisfying society’s short-term needs and pursuing prosperous economic development, increasing investment in public resource areas, deepening industrial structural reforms, offsetting negative supply shocks brought by trade frictions and cross-border investment, raising long-term output levels and increasing employment opportunities.

Globalisation and government spending: Evidence for the ‘hyper‐globalisation’ of the 1990s and 2000s

AbstractIn this paper, we provide an up‐to‐date empirical assessment of the relationship between economic globalisation and government spending for the ‘hyper‐globalisation’ period of the 1990s and 2000s. We use data on government consumption spending and more disaggregated spending components (e.g., social welfare). We also use a range of globalisation measures, including the most recent version of the KOF globalisation index, and a combination of econometric methods, including fixed‐effects and instrumental variable (IV) estimation. The results suggest that hyper‐globalisation has had divergent and conflicting effects on consumption spending: while de jure trade globalisation has tended to raise spending, de jure financial globalisation has tended to reduce it. We also find evidence that the positive effect of de facto trade globalisation on spending weakened significantly during the 1990s and 2000s, in comparison with earlier decades. These effects could have contributed to the growing political backlash witnessed against globalisation since the early 2000s.

Impacts of productive and recurrent public expenditure on economic growth in South Africa: An analysis using the autoregressive distributed lag – error correction model

Orientation: The weak economic growth experienced by South Africa in the face of increased government spending is a concern. Research purpose: Investigating different components of government spending helps to observe their relationships with economic growth and conclude whether or not government spending contributes to the lower economic growth. Motivation for the study: Earlier studies in South Africa considered the effects of total government spending on economic growth; however, estimating this effect does not depict reality. Research approach/design and method: This study used annual data from 1976 to 2017 to observe this relationship. The autoregressive distributed lag bounds-test approach to cointegration and the ARDL-based error correction method were adopted. Main findings: The results showed that the two components of government spending positively affect economic growth in the short and long run. Government investment spending has a greater effect on economic growth in the long run than in the short run. The results showed that government consumption expenditure outweighs government investment expenditure, with the latter having lesser effect on economic growth. Practical/managerial implications: This shows that increased government spending is not to be blamed for the slow growth in South Africa, supporting theory. Contribution/value-add: Some studies did not disaggregate government spending into government investment and consumption spending in South Africa; and observed how each component affects economic growth; and other studies used econometric techniques that are different from the one used in the current study. This study therefore contributes to the ongoing discussion of the effect of government spending on economic growth.

THE IMPACT OF FISCAL POLICY ON GDP PER CAPITA: EVIDENCE FROM MALAYSIA

This study investigated the relationship between income per capita and government spending in Malaysia using annual data spanning from 1980-2018. Auto-regressive distributed lag (ARDL) and VAR-differenced model (VECM) was employed to examine the relationship between income per capita, government consumption, and government expenditure on education. Inflation is used as a control variable in the model. The result concluded that government consumption, government expenditure in education, and inflation have a unidirectional short-run causal effect on income per capita. In the long run, income per capita has a negative relationship with government consumption spending, while has a positive relationship with government expenditure in education. Government expenditure in education is crucially important in Malaysia and it should be continued to give more opportunities for Malaysians to get a better education and as a result, get a better job and improve the standard of living.

The Changing Structure of Government Consumption Spending

We document a secular increase in the share of purchases from the private sector in government consumption spending: over time the government purchases relatively more private-sector goods, and relies less on its own production of value added. We build a general equilibrium model in which investment-specific technological change accounts for the changing structure of government spending. The model predicts that this secular process alters the transmission of government spending shocks by raising the response of private value added, while dampening the response of hours. We validate these results with novel empirical evidence on the effects of government spending across countries.

Is it the economic policy, stupid? Economic policy, political parties & the gubernatorial incumbent advantage

Incumbent politicians have a well-known advantage in seeking re-election. Using the Economic Freedom of North America dataset, we examine how changes in economic policy during an incumbent governor's tenure influence the probability of losing their re-election bid. Put simply, does economic policy matter for the incumbent advantage? The results suggest that a decrease in economic freedom increases the probability of an incumbent loss, regardless of the governor's party. A decomposition analysis indicates that these results are primarily driven by the government spending sub-index. Furthermore, a more granular analysis suggests that: (1) increases in government consumption spending and government employment are associated with a lower probability of re-election among Democratic incumbent governors, but a higher probability among Republicans; (2) increases in transfer payments relative to personal income reduce the likelihood of re-election, regardless of party; and (3) among Republican incumbents, increases of income taxation and of top marginal tax rates are associated with a higher and lower, respectively, probability of losing re-election. Finally, controlling for a variety of demographic, political and socioeconomic factors, we find that high unemployment increases the probability that an incumbent loses re-election, while increasing net population migration reduces it.