The linkage between economic growth and govenrment spending: The case of Turkey

The relationship between economic growth and government spending is constituted from two theoretical perspectives. These are the views of A. Wagner and J. M. Keynesyen. According to Wagner, the causality relationship between economic growth and government spending is directed towards revenue from public expenditure. In other words, in economically growing economies, needs and expenditures are diversifying and increasing. On the other hand, Keynesian economists, argue that public spending will positively affect economic growth. In this study, the relationship between current, investment, interest, transfer (non-interest) and total government spending (non-interest) and gross domestic product are analyzed using the data for the period 1975-2015 in Turkey. Firstly, the existence of a long-term relationship between the variables was tested by ARDL cointegration technique and it was determined that there was no long-term relationship between the variables. In this case, the short-term relationship between variables was analyzed by the VAR method and causality tests. According to the results of the impulse-response functions and variance decomposition obtained based on VAR model; The most important type of government spending affecting GDP is interest expenditures. According to the Toda-Yamamoto causality test results, a causality from interest spending to GDP was determined at 5% significance level. At a level of 10% significance, a causal relationship from GDP to investment spending and from non-interest government spending to GDP was determined. According to the results of the Hacker-Hatemi-J causality analysis, a causality from GDP to interest spending was obtained.