Government Consumption Spending Research Articles

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.

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.

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

Using a panel of eight large emerging market economies from 1980 to 2015, this paper seeks to assess the causal linkages between government size, unemployment, and inflation. Overall, our results suggest that the government size is positively associated with both unemployment and inflation. The Granger causality runs from the government size to unemployment and to inflation. From our analysis, two aspects stand out. First, the effects of government size on unemployment and inflation depend essentially on how the government size is measured. As long as government consumption spending is considered as the proxy measure of the government size, the government size is significantly and positively correlated with unemployment, and with inflation. Second, indirect taxes, like government consumption spending, have a positive as well as statistically significant association with unemployment. However, the direct taxes solely exert a strong effect on inflation in the countries considered.

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. In other words, does economic policy matter for the incumbent advantage? The results suggest that decreases in economic freedom increase the probability of incumbent loss, regardless of the governor's party. A decomposition analysis indicates that these results are primarily driven by the government spending sub-index. 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 governors, but a lower probability among Republicans; (2) Increases in transfer payments relative to personal income reduce the likelihood of re-election, regardless of party; (3) increases in income taxation relative to personal income and top marginal tax rates are associated with a higher and lower, respectively, probability of losing re-election, but only among Republican incumbents. We also control for a variety of demographic, political and socio-economic factors and find that high unemployment increases the probability that an incumbent loses re-election and net migration reduces it.

Does Government Spending Affect Income Poverty? A Meta-regression Analysis

Summary This paper presents the results of a meta-regression analysis of the relationship between government spending and income poverty, with a focus on low- and middle-income countries. Through a comprehensive search and screening process, we identify a total of 19 cross-country econometric studies containing 169 estimates of this relationship. We find that the size and direction of the estimated relationship are affected by a range of factors, most notably the composition of the sample used for estimation, the control variables included in the regression model, and the type of government spending. Overall, we find no clear evidence that higher government spending has played a significant role in reducing income poverty in low- and middle-income countries. This is consistent with the view that fiscal policy plays a much more limited redistributive role in developing countries, in comparison with OECD countries. In addition, we find that the relationship between government spending and poverty is on average less negative for countries in Sub-Saharan Africa, and more negative for countries in Eastern Europe and Central Asia, compared to other regions. We also find that the relationship is less negative for government consumption spending, in comparison with other sectors. Finally, we find some evidence indicating the possibility of publication bias.

External debt among HIPCs in Africa: accounting and panel VAR analysis of some determinants

PurposeThe management of external debt among highly indebted poor countries (HIPCs) in Africa still remains a challenge despite numerous packages and attempts to ameliorate the consequences of such odious debt. The purpose of this paper is to establish the factors that contribute to the growth rate of external debt and how these factors respond to shocks to external debt growth rate in Africa.Design/methodology/approachData were obtained from 24 African countries and analyzed using a panel vector autoregression estimation methodology.FindingsThe study found that external debt growth rates respond positively to unit shock or changes in government investment spending, consumption spending, and domestic borrowings over a long period of time. In the medium term, external debt growth rates respond negatively to shocks in tax revenue, inflation, and output growth rates. The paper also provides empirical support that external debt may be consumed rather than invested among HIPCs in Africa.Research limitations/implicationsThe findings of this paper are limited to only HIPCs in Africa.Practical implicationsThis study has some few debilitating implications for external debt management among HIPCs in Africa. First, the paper suggests that debt repayment may be a problem. This is largely because external debt is consumed rather than invested. External debt sustainability needs a holistic approach in less developed countries. The findings place much emphasis on improvements in gross domestic product and tax revenues as the principal routes out of the debt doldrums. However, this option must be exploited with great caution as there is ample evidence that these poor countries increase their external borrowing capacities with improvements in economic outlook.Originality/valueThis paper fills a research gap that identifies specific components of government deficit budgets that may be contributing to the growth rate of external debts among HIPCs.

Government spending and economic growth in the OECD countries

Using panel data from 1995 to 2011 for 34 OECD countries, we examine the effects of government consumption spending, public social spending, and public investment on economic growth. We use a generalized method of moments estimation technique to solve inconsistency problems with fixed effects and random effects panel estimation. We find that an increase in public social spending has a significant negative effect on subsequent economic growth. Government consumption spending and public investment have no significant effect on subsequent economic growth.

Local Economic Gains from Primary Election Spending

This paper asks how government and private consumption spending affect earnings in service sectors. To do this, we exploit the variation across states and time in the money spent while campaigning for a party’s Presidential primary nomination. We create a novel dataset combining the date each state held its primary from 1976-2008, the date in each election cycle in which only one candidate remained, and quarterly state earnings by sector. Using an instrumental variable strategy, we find that hosting a primary election increases earnings, particularly in the retail and accommodations sectors. These results remain consistent when using data on primary campaign expenditures across states in the 2004 and 2008 elections. JEL codes: D7, P0, H0 ∗The authors acknowledge helpful comments from Amit Gandhi, Ken Goldstein, Andrew Reschovsky, John Karl Scholz, Alan Sorenson, and Chris Taber. All remaining errors are our own. †rlessem@andrew.cmu.edu, Tepper School of Business, Carnegie Mellon University, 5000 Forbes Ave, Pittsburgh PA 15213 ‡carly.urban@montana.edu, Department of Agricultural Economics & Economics, Montana State University, P.O. Box 172920 Bozeman, MT 59717

Taxation, Government Spending & Economic Growth: In Brief

Taxation and government spending as a proportion of GDP have increased dramatically since World War I. Spending has increased from one-eighth of national income to somewhere between 40% and 45% of GDP today, the actual figure depending on how GDP is measured. Despite widespread hysteria, there has not been a significant reduction in the level of government spending since 2010. Real spending fell by just 0.5% a year between 2010 and 2015 and is planned to increase through to 2020. Overall, spending as a proportion of national income at factor cost is still planned to be historically high at a level of 41% by 2020.The composition of government spending matters for economic growth. Government capital spending can enhance growth, though it should also be judged by its opportunity cost. Government consumption spending tends to harm growth. Badly designed government transfers can undermine growth by worsening incentives. As a proportion of national income, government investment has fallen whilst welfare payments and other government spending have increased since the 1960s. The current UK tax system is a very badly designed system with high marginal rates, huge complexity, taxes that discourage wealth-creating economic activity and wide-ranging exemptions. However, a better tax system can be created. This would entail abolishing twenty current taxes, including corporation tax, national insurance, capital gains tax, inheritance tax, council tax, and a range of duties. The reformed system would comprise a flat-rate income tax at 15 per cent of income above a personal allowance of £10,000, with distributed corporate profits also taxed at this rate; VAT at 12.5 per cent; a new housing consumption tax at 12.5 per cent; a new location land value tax; and fuel duty at around half the current rate.