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Time‐Series Evidence on the Nonlinearity Hypothesis for Public Spending
Author(s) -
Mittnik Stefan,
Neumann Thorsten
Publication year - 2003
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1093/ei/cbg028
Subject(s) - economics , public spending , econometrics , public investment , consumption (sociology) , investment (military) , endogenous growth theory , german , time series , series (stratigraphy) , macroeconomics , production (economics) , human capital , mathematics , statistics , history , paleontology , social science , archaeology , sociology , politics , biology , political science , law , economic growth
Barro‐type endogenous growth models propose a nonmonotonic relationship between productive public spending and growth. Under this so‐called nonlinearity hypothesis the size and direction of growth effects due to an increase in public spending depend on the share of public spending in GDP. Employing German time‐series data we examine the validity of the nonlinearity hypothesis. We estimate growth effects by using models whose coefficients are allowed to vary with the share of public spending in GDP. Our results support the hypothesis for public consumption but not for public investment data. (JEL H54 , E62 , C22 )