Volatile Discretionary Public Spending and Economic Growth: A Comparative Evidence of Developed and Developing Countries

Karim Khan, Muhsin Ali, Nasir Iqbal

Abstract


Discretionary public spending has diverse implications for overall economic performance of the economies. In this study, we examine the impact of volatile discretionary public spending on economic growth for a panel of selected countries. The panel comprises 55 countries while covering a period from 1985 to 2014. By employing the Generalized Method of Moment (GMM), we find that the volatility in discretionary public spending inversely affects economic growth in the aggregate list of our sample countries. Onwards, we decompose our sample into developing and developed countries. In case of developing countries, the results remain intact, i.e. discretionary spending volatility has severe implications for economic growth. However, the impact appears insignificant in developed countries. This suggests that countries which are following the smooth public spending policy or operating under certain fiscal rule are immune to the adverse consequences of volatility in public spending.


Keywords


Volatility in Discretionary Public Spending, Economic Growth, the Generalize Method of Moment (GMM)

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DOI: http://dx.doi.org/10.22555/pbr.v20i2.811

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