Government Expenditure and Economic Growth in Euro Area Countries

Abstract

In this article, the author examines the impact of government expenditure
on economic growth. A review of empirical studies shows that researchers
have found a negative link between government spending and economic
growth in most cases. This paper is based on yearly data between 1995 and
2020 in euro area countries, with the application of linear regression on
panel data. The main purpose is to determine whether government spending
affects economic growth and, if so, how. Based on the econometrics model
applied, the author established that in panel data, government expenditure
has a negative impact on economic growth, more precisely, if government
spending as a share of GDP increases by 1%, economic growth decreases
by 0.509%. In addition, there is a significant negative relationship between
government expenditure and economic growth for each country as well as
the entire panel.