Government Consumption, Government Debt and Economic Growth

Abstract

This paper compares the effects of government consumption and government debt on economic growth by using data from 83 countries, including both developed and developing markets, over the period between 1960 and 2014. Linear regressions reveal that the negative effects of government consumption are relatively higher than the negative effects of government debt. A nonlinear investigation further suggests that the restrictions on government expenditure to prevent negative growth are shown to be more important for countries with lower trade openness, lower inflation, or higher financial depth, whereas the restrictions on government debt are shown to be more important for countries with higher trade openness, lower inflation or higher financial depth.