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Is There Asymmetry in the Relationship Between Government Consumption Dynamics and Economic Activity? Evidence From G7 Economies

Marko Senekovič

Abstract


In this paper, based on a quarterly dataset of G7 countries with the application
of a nonlinear ARDL model we test for the presence of a short-run and longterm
asymmetry in the relationship between government spending and economic
activity. The main aim of this study is to analyze the relationship between
government spending and economic activity in two separate scenarios, first,
in periods when government spending increases and, second, in periods when
government spending decreases. Our key findings are, first, the linear model
that produces a positive relationship between government consumption and
economic activity. Second, in the nonlinear model, more than half of the shortrun
and long-run coefficients are statistically significant. Third, short-run and
long-run asymmetry are detected in four out of seven cases with recognized
short-run asymmetry also in the remaining three cases based on graphical
analysis. Finally, a negatively inclined short-run asymmetry is detected. The
results thus imply a stronger output effect in periods of declining dynamics in
government consumption. Future research should be focused on broadening the
sample countries and model by adding additional variables.

Keywords


fiscal policy, nonlinear ARDL model, G7 countries

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