The Impact of public expenditure on economic growth: A Study on Azerbaijan economy

In the study, the relationship between economic growth and public expenditures in the Azerbaijani economy during the period 1994-2023 was analyzed using econometric methods within the framework of Wagner's Law and Keynesian theories. Five different models were employed to analyze the impact of public expenditures on economic growth and how growth shapes public expenditures. The research explores the relationships between public expenditures and variables such as Gross Domestic Product (GDP) and GDP per capita. The findings indicate that public expenditures have increased in line with economic growth and that this relationship aligns with Wagner's Law. The analyses reveal that while economic growth has a stimulating effect on public expenditures, the impact of public expenditures on economic growth is indirect and limited. Specifically, the study concludes that increases in GDP lead to higher public expenditures, and this relationship is strongly present within the framework of Wagner's Law. Additionally, the study emphasizes that strategically directing public expenditures towards areas such as education, health, and infrastructure can positively influence economic growth. The study highlights that the relationship between public expenditures and economic growth in Azerbaijan is driven primarily by economic growth as a fundamental factor shaping and directing public expenditures, and that Wagner's Law is applicable in the Azerbaijani economy. The findings underline the importance of adjusting the effects of public expenditures on growth flexibly, according to the dynamic nature of policies and economic conditions. In conclusion, this study reveals that the dynamic relationship between public expenditures and economic growth in the Azerbaijani economy requires a flexible and strategic approach, not only to respond to current economic conditions but also to adapt to future economic developments. This indicates the need for a long-term perspective in planning public expenditures.