The Effect of Government Spending on Economic Growth: Evidence from the OECD Countries

Abstract

This paper investigates the impact of public social spending, government investment and government consumption spending on economic growth using panel data from 2000 to 2019 for 25 OECD countries. Methods including the fixed effects, random effects, and the generalised method of moments are applied to carry out analysis. The results indicate public social spending, government investment and government consumption spending have no significant effect on economic growth. This could be attributed to high tax rates and unemployment benefit programs that offset any increased productivity due to government spending in these countries.

Keywords: Economic Growth, Fixed Effects, Government Spending, Methods of Moments, OECD Countries, Random Effects

JEL Classification: C23, N10, O47