Working Paper #2008-23 - INSTITUTIONS AND THE IMPACT OF GOVERNMENT SPENDING ON GROWTH

Department of Economics
University of Delaware
Working Paper #2008-23

INSTITUTIONS AND THE IMPACT OF GOVERNMENT SPENDING ON GROWTH

James L. Butkiewicz and Halit Yanikkaya

ABSTRACT

This paper reports the results of a study of the impact of government expenditures on economic growth, emphasizing how government effectiveness in developing nations influences the productivity of government spending. The effects of categories of government spending on growth are also examined. No significant positive effects are found for defense, education and health variables. Consumption expenditures have negative growth effects in developed and developing nations, with a more detrimental impact in developing nations with ineffective governments. Developing nations with ineffective governments benefit from capital expenditures. To stimulate growth, developing nations should limit their governments’ consumption spending and invest in infrastructure. 

JEL Codes: O11, O23, O50

Keywords:  Government spending, Institutional Quality, Economic Growth