Public expenditure and economic growth: new empirical evidence from Southeast Europe
Public expenditure and economic growth: new empirical evidence from Southeast Europe

Author(s): Desislava Stoilova
Subject(s): Economy, Supranational / Global Economy, Public Finances, Socio-Economic Research
Published by: Нов български университет
Keywords: public expenditure; economic growth; Southeast Europe
Summary/Abstract: The main purpose of this paper is to study the impact of public spending financed by central and local government budgets on economic growth. The methods used are descriptive and comparative analysis of the main indicators of government spending and investment activity. Correlation and regression analysis of panel data is applied to estimate the effects of public investment on economic growth in nine countries located in Southeast Europe (SEE), namely Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Montenegro, Romania, Serbia, and North Macedonia. The study covers the period 2010 – 2021. The results show cyclical dynamics of government spending and great heterogeneity in the size of the public sector as a percentage of gross domestic product (GDP). At the same time, the correlation and regression analyses indicate a negative impact of total government expenditure and government consumption on the growth rate, while the effects of public investment at both central and local levels of government are negative but not statistically significant. These findings suggest low efficiency of public spending. The main conclusion is that public investment is not an effective tool for fiscal impact on the economic development in the nine selected SEE countries.

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