Original scientific paper
Budget spending and economic growth in Croatia - Dynamics and relathionships over the past two decades
Ivo Sever
; Nova Ves 79, Zagreb, Croatia
Saša Drezgić
; Faculty of Economics, University of Rijeka, Rijeka, Croatia
Helena Blažić
orcid.org/0000-0003-4602-3665
; Faculty of Economics, University of Rijeka, Rijeka, Croatia
Abstract
The objective of this research is to analyze the relationship between government budget spending and the effect on the growth and structure of the GDP of Croatia during the past two decades. The starting working assumption (hypothesis) is that the volume of total budget expenditure (including the foreign borrowing) has not been realizing appropriate effect on GDP growth. In the analysis of these relationships we primarily use the method of vector autoregressions (VAR). The main result of the analysis showed that, in accordance with theoretical assumptions, the structure of expenditures is essential for the effects of budgetary spending on economic growth. We determine the positive effects of investment spending and purchases of goods and services and the negative effects of other categories of current spending. The reduction of capital expenditures during the recession presents a particularly adverse trend, which reduces the rate of growth of the economy in the long and short term. A fundamental conclusion of the research is that the budget expenditures have not adequately affected the GDP growth. Therefore, it is possible to affect the economic growth by changing the structure of budgetary spending, as well as directing public borrowing to investment financing.
Keywords
Budget spending; gross domestic product; vector autoregression; structure of expenditures; public debt; Croatia
Hrčak ID:
75202
URI
Publication date:
16.12.2011.
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