Original scientific paper
https://doi.org/10.51680/ev.39.1.9
Is bigger better? Nonlinear effects of government spending on growth
Nazmiye Tekdemir
orcid.org/0000-0002-7292-569X
; Kirikkale University, Faculty of Economics and Administrative Sciences, Türkiye
*
Abdulkadir Bulut
orcid.org/0000-0001-6351-0583
; Hitit University, Faculty of Economics and Administrative Sciences, Department of Public Finance, Türkiye
* Corresponding author.
Abstract
Purpose: This study analyses the impact of public expenditures on economic growth within the framework of the Armey curve. The Armey curve posits an inverted U-shaped relationship between government size and growth, implying that public spending promotes economic activity up to an optimal point, beyond which its marginal contribution becomes negative. The study empirically examines this nonlinear relationship using data from 47 emerging economies for the period 1991–2019.
Methodology: In the study, the Method of Moments Quantile Regression (MMQREG) technique, which can capture marginal effects that differ according to income levels, was applied. The robustness of the findings is tested with Dynamic OLS (DOLS) and Driscoll-Kraay methods.
Results: The results obtained show that public expenditures increase growth up to a certain threshold, and if this threshold is exceeded, it has negative effects on growth. While the optimal level of public expenditure for low-income countries is approximately 15 per cent of GDP, this ratio increases to 19 per cent in high-income countries. This shows that the impact of public expenditures on growth varies according to country conditions.
Conclusion: The study reveals that the effect of public expenditures on economic growth cannot be explained by a universal policy ratio and that each country should develop differentiated fiscal policies in line with its income level and institutional structure.
Keywords
government expenditures; economic growth; Armey curve; panel data analysis
Hrčak ID:
348483
URI
Publication date:
28.6.2026.
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