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THE EFFECT OF GOVERNMENT SPENDING ON ECONOMIC GROWTH: TESTING THE NON‐LINEAR HYPOTHESIS
Author(s) -
Christie Tamoya
Publication year - 2014
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.2012.00438.x
Subject(s) - endogeneity , economics , econometrics , government spending , government (linguistics) , identification (biology) , null hypothesis , sample (material) , linear model , macroeconomics , public economics , mathematics , statistics , welfare , linguistics , philosophy , botany , chemistry , chromatography , market economy , biology
Theoretical models suggest a non‐linear relationship between government size and long‐run economic growth. However, testing this hypothesis empirically in cross‐country studies is complicated by the endogeneity of government spending and the accurate identification of inflexion points. This paper examines the non‐linear hypothesis by incorporating threshold analysis in a cross‐country growth regression. The methodology utilizes a sample‐splitting framework and follows an objective strategy for identifying and testing changes in the slope. The results provide evidence in support of the non‐linear hypothesis for a broad panel of countries.