The Long-Term Relationship between Economic Growth and Public Spending in Spain (1850-2000)

Investigaciones de Historia Económica - Economic History Research, 2013

Posted: 4 Mar 2013

See all articles by Daniel Díaz-Fuentes

Daniel Díaz-Fuentes

Universidad de Cantabria; Universidad de Cantabria, Department of Economics

Julio Revuelta

University of Cantabria - Department of Economics

Date Written: March 3, 2013

Abstract

This article looks at the relationship between public expenditure and economic growth in the Spanish economy in the period 1850-2000. We start from 2 assumptions: one states that the changes in public expenditure directly affect economic growth; the other reverses the relationship between these variables, by assuming that growth increases the size of the public sector. These assumptions could be identified with those proposed by Keynes and Wagner, respectively. To perform the study we applied quantitative techniques based on co-integration, causality, and error correction model. We have also taken into account the different functional components of public expenditure and structural breaks, or changes that have occurred in the series. The results show that the economic growth unidirectionally determined the fiscal policy for most of the period analysed. At least until the increase in the public sector size, driven by democratic reforms, caused a change in the causality direction of this relationship.

Suggested Citation

Diaz-Fuentes, Daniel and Diaz-Fuentes, Daniel and Revuelta, Julio, The Long-Term Relationship between Economic Growth and Public Spending in Spain (1850-2000) (March 3, 2013). Investigaciones de Historia Económica - Economic History Research, 2013, Available at SSRN: https://ssrn.com/abstract=2227727

Daniel Diaz-Fuentes (Contact Author)

Universidad de Cantabria ( email )

Av. Los Castros s/n
Santander 39005, Cantabria 39005
Spain
+34 942201624 (Phone)

HOME PAGE: http://personales.unican.es/diazd/

Universidad de Cantabria, Department of Economics ( email )

Av. Los Castros s/n
Santander 39005, Cantabria 39005
Spain
+34 942201624 (Phone)

HOME PAGE: http://personales.unican.es/diazd/

Julio Revuelta

University of Cantabria - Department of Economics ( email )

Av. Los Castros s/n
Santander 39005, Cantabria 39005
Spain

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