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Title: On the composition of government spending, optimal fiscal policy, and endogenous growth: Theory and evidence
Authors: Ghosh, S
Gregoriou, A
Keywords: Productive and unproductive government spending, Optimal fiscal policy,;Developing countries, Panel data.
Issue Date: 2006
Publisher: Brunel University
Citation: Economics and Finance Working papers, Brunel University, 06-19
Abstract: In an endogenous growth model with two public services with differing productivities, this paper analytically characterises optimal fiscal policy for a decentralised economy, whereby the optimal values of the growth rate, tax rate and expenditure shares on the two public goods are linked directly to their productivity parameters. Using panel data for 15 developing countries over 28 years, we show using GMM techniques, that current (capital) spending has positive (negative) and significant effects on the growth rate, contrary to commonly held views. Our theoretical results extend, and our empirical results modify those obtained by Devarajan et al. (1996).
Appears in Collections:Economics and Finance
Dept of Economics and Finance Research Papers

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