Governments spending and growth nexus with nonlinear adjustments: re-examining the Croatian and Slovenian case

Abstract

The objective of this paper is to analyze the governments spending-economic growth nexus and examine the asymmetries in the adjustment process between the two in the Croatian and Slovenian economy. The baseline relationship model between the variables of interest is grounded on the assumption of Wagner's Law and Keynesian hypothesis. A possible nonlinear asymmetric effect of governments spending and GDP toward their long-run equilibrium is tested for each case. The test results indicate the presence of nonlienarity in the relationship between public spending and GDP in Croatia and Slovenia as well. Eventually, country specific threshold cointegrating relationship between the considered variables are estimated and tested. The results reveal well suited threshold vector error correction model with significantly different error correction adjustments in normal and stress regimes for each of the two sample country.

What drives economic growth sustainability? Evidence from Indonesia

“…An expansive fiscal policy through high government spending will become one of some key factors of economic growth. Some previous studies highlight the positive relationship between government spending and economic growth (Bošnjak, 2018;Butkiewicz & Yanikkaya, 2011;Tsaurai & Odhiambo, 2013). Regarding sustainable economic growth, a positive effect of government spending on economic growth supports the sustainability of economic growth.…”

“…Therefore, we can say that economic growth is potentially unsustainable. Many factors may affect economic growth sustainability, such as inflation rate, fiscal, and monetary policy as well as an international factor (Akinsola & Odhiambo, 2017;Barro, 2013;Bošnjak, 2018;Bukhari & Yusof, 2014;Butkiewicz & Yanikkaya, 2011;Gupta, 2011;Kasidi & Mwakanemela, 2013;Tsaurai & Odhiambo, 2013;Tvaronavičienė, 2019;Sasongko et al, 2019;Zeibote et al, 2019).…”

Dynamic Effects of Energy Consumption on Economic Growth in an Emerging Economy

“…However, this study only involves one variable as a determinant of economic growth that is final energy consumption. Some previous research that focuses on economic growth determinants generally mentions several variables such as capital, labor, natural resources and government policies (Bošnjak, 2018;Černohorská, 2018;Hodula and Pfeifer, 2018). Based on these studies, we may highlight that economic growth is affected by various variables such as energy consumption, fiscal and monetary policies.…”

“…Several papers focus on the relationship between energy consumption and economic growth (Farabi et al, 2019;Dahmardeh et al, 2012;Kao and Wan, 2017;Paramati et al, 2018;Karhan, 2019;Zeshan andAhmed, 2014, Ozturk, 2010). Other studies also elaborate on the impact of government policy including fiscal and monetary policies on economic growth (Bošnjak, 2018;Butkiewicz and Yanikkaya, 2011;Tule et al, 2018). Moreover, the analysis of the determinants of economic growth should include its fundamental variables such as capital and labor (Ali et al, 2018;Rafat, 2018;Srinivasan et al, 2011).…”

“…Other studies also elaborate on the impact of government policy including fiscal and monetary policies on economic growth (Bošnjak, 2018;Butkiewicz and Yanikkaya, 2011;Tule et al, 2018). The inclusion of the aspects of fiscal and monetary variables in the economic growth model is to explore the role of the political will of the government through various policies.…”