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The Size of Government and Economic Growth Rates in Turkey (1981-2018). Data Source: Ministry of Treasury and Finance, Republic of Turkey (2019).
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The relationship between economic growth and public spending as a percent of GDP (government size) is a quite widespread issue in the literature. One of the important explanations of these debates is the Armey curve. The Armey curve is defined as a geometric expression that public spending below an optimal threshold level has an expanding effect, b...
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... In this case, the authors have used Autoregressive Distributed Lag (ARDL) during the estimation, which is also used for Turkeye for 1981-2008 for the estimation of the Armey-Rahn curve (Yüksel, It should be noted that the research about the above-mentioned Armey-Rahn is proved, when Keynes's theory is in place and when there is a non-linear relationship between government spending and economic growth. For example, for Bulgaria during 2010-2018 (Vasilev, 2019) and Turkeye during 1981-2018 (Yüksel, 2019). Moreover, if Wagner's theory means the impact of Gross Domestic Product (GDP) on government spending, there exists the other way too, and government spending also affects the economy. ...
Nino Mikeladze Email:ninomikeladze88@gmail.com Doctoral student (Master’s in Economics) Ivane Javakhishvili Tbilisi State University Tbilisi, Georgia https://orcid.org/0009-0008-1214-7241 Government measures during the economic policy implementation should be based on the impact on economic growth and economic development. Moreover, as it is inevitable to have government expenditures, it is crucial to analyze what kind of relationship exists between economic growth and government expenditure. According to Keynes, government expenditure is the measure of the fiscal policy, On the other hand, according to Wagner, public spending is endogenous factor of economic development. There is no common attitude towards Wagner theory. Moreover, Wagner theory is considered to be valid for the long run period and results could be more valid in terms of economic as well as statistical interpretation, when longer time-series is taken. While exploting the dependence between economic growth and government spending, we should analyze the Armey-Rahn curve as well, which explains that up to some point, when government spending is increasing, economic activity is increasing as well, but then is starts to decline. The paper examines such dependence based on Wagner’s law and Keynes’s theory for Georgia, but using only capital spending as it is perceived as one of the main sources for economic growth. All the available data is used, during 1995-2022, for capital spending growth and economic growth indicators. The results show that Wagner’s law is not fulfilled meaning that economic growth is depended variable and capital spending growth is explanatory. The impact on economic growth is observed after 3 years, which makes sense if we consider the nature of capital spending. However, we can say that due to the lack of data and only two variables included in the analysis, the results might not be relevant.
... ned a non-linear relationship. The authors found an optimal rate of 3.9% of GDP for investment expenditures, 12.6% of GDP for consumption expenditures, and 16.9% of GDP for total government expenditures. Pamuk and Dundar (2016) used the Scully approach and found that the optimal size of government for Turkey was 23.5% of GDP in the period 1950-2006. Yuksel (2019 demonstrated the validity of the Armey curve for Turkey between 1981 and 2018, finding that the optimal size of government was 16% of GDP for this period. Durucan (2022) tested the validity of the BARS curve for Turkey in the period 1974-2016. The author concluded that an inverted U-shape is valid in Turkey for the relationship between ...
One major theoretical and empirical issue that has dominated fiscal policy
for many years concerns the optimal size of government. Armey (1995)
believes that the relationship between government expenditure and economic
growth is an inverted U-shape, arguing that there is an optimal point where
government expenditures maximise economic growth. The primary objective of
this study is to investigate the validity of the Armey curve for Turkey in
the period 1998:Q1-2020:Q4 using the Fourier cointegration method. The study
has found that the Armey curve is valid for Turkey. The evidence indicates
that the optimal size of government in Turkey is equal to approximately
18.5% of GDP. This paper highlights that the notion that government
expenditure increases economic growth should not be seen as the only policy
option. A key policy priority should therefore be to design fiscal policies
that take into account this non-linear relationship.
... On the other hand, Eykut Ekinci (2011) suggested that the optimal government size could be kept at around 13.4% in a healthy and growing economy. Yuksel (2019) proposed that the optimal level of public expenditure that maximizes economic growth in Turkey is 16% of GDP. In general, James (2011) stated that studies on the relationship between the size of the government and economic growth have proposed an optimal government size ranging from 15% to 30% of GDP. ...
This study aims to evaluate the size of the public sector during the premiership of three former prime ministers of Malaysia. The size of the public sector in Malaysia was measured based on total expenditure for the period 1982 - 2015. A comparison of public sector size based on the percentage of total public sector expenditure to GDP suggests that the size of the public sector was bigger during the early years of Tun Dr. Mahathir’s premiership; the percentage remained at a low level from 1994 onwards and continued during the tenure of his successors. The trend in the size of the public sector of the three prime ministers ranges from 15% to 30%, which means that the Malaysian government's sizing practices are consistent with other countries. Taking into account the government’s operating expenditure to total expenditure, the percentage of operating expenditure increased during the premiership of Dato’ Sri Najib. The government policy in the days of Dato’ Sri Najib focused on implementing government reform programs and increasing employment, which could have led to higher operating expenditure compared to development expenditure. Based on trends in government spending, the size of the government can be related to political or policy changes and economic conditions during the said prime ministers’ tenure.
... Therefore, governments need to focus on the opportunities to improve public sector efficiency. C. Yüksel [15] points out that the public expenditure and economic growth nexus are extremely dynamic, and differences can be observed not only for individual countries but also for different periods, including within the same economy. ...
The subject of the analysis is to check the validity of the Armey curve which is frequently used in the scientific literature and to establish the optimal level of the public sector. The aim of the present study is to analyze the impact of the public sector through public expenditure on the possibility of achieving economic growth. The estimation is based on annual data for the period 2006–2019 of selected Balkan countries and Russia. The authors apply the ordinary least squares (OLS) method for a nonlinear regression model. The conclusion is that the Armey curve is valid for some of the countries involved in the research among which Serbia, North Macedonia and Russia. The public expenditure to Gross Domestic Product ratio’s threshold value, which maximizes economic growth, ranges from 32.94 to 42.37%. The average share of public expenditure in the analyzed countries is approximately equal to the threshold values that are obtained which is indicative of achievement to some extent the desired economic performance. However, the results of the study show that the growth of the public sector and its impact on economic development should not be underestimated.
... Asimakopoulos and Karavias (2016) find that optimal public spending is higher in developing countries than in developed ones, although for their group of 129 countries, the optimal threshold level of government size is 18.04 percent of GDP. Varol and Turan (2017) and Yüksel (2019) prove the existence of the Armey curve for the Turkish economy in the periods 1998and 1981-2018, respectively. Yüksel (2019 indicates that the parabolic shape of the Armey curve is essential for calculating the optimal size of the government. ...
... Yüksel (2019 indicates that the parabolic shape of the Armey curve is essential for calculating the optimal size of the government. The optimal level of public spending that maximizes Turkey's economic growth is 16 percent of GDP (Yüksel, 2019), similar to the 16.5 percent obtained by Varol and Turan (2017). Vaziri et al. (2011) and Phan and Phung (2018) estimate government size represented as "general government consumption expenditure." ...
... Myeong, Yongseung, Heather, and Vargas (2020) find that there is an inverted U-shaped relationship called the BARS curve between public spending and the growth rate of real GDP for South Korea. Although there are studies that call the inverted U-shaped relationship the BARS curve, the Armey curve is frequently used in the literature (Yüksel, 2019). For the period 1980-2011, Thanh and Mai (2015), using a smooth transition regression model for panel data (PSTR), validate the existence of a non-linear relationship between government size and economic growth for ASEAN countries, the threshold level of public consumption spending is 25.69 percent of GDP, as government size exceeds this level, economic growth slows by 0.2 per cent. ...
The objective of this study is to examine the “inverted U” relationship between public spending and economic growth known as the Armey curve, and to review the empirical evidence on the optimal level of public spending required, by country, to maximize gross domestic product (GDP), based on regression methods and the Armey curve. The Armey curve denotes a positive relationship between public spending and GDP up to a maximum point thereafter the relationship becomes negative: that is, public spending is productive only to a certain extent, after which it becomes unproductive. The empirical findings show the inverted U-shape between public spending and growth, and therefore whether government spending is of an optimal size. World Bank data on public spending (as a percentage of GDP) and GDP per capita in US$ purchasing power parity (PPP) for 2017 identifies countries with low public spending and high GDP per capita, such as the Special Administrative Region of Macao, China. Moreover, the studies reviewed show that current public spending and/or average public spending across different countries is above or below the threshold public spending level. Among the policy implications, it is suggested that countries below the threshold inject public spending into investments that generate a greater impact on the economy. The management of public spending to achieve the optimal government size should ensure long-term sustainable economic growth for the countries of the world.
تبحث تلك الدراسة العلاقة غير الخطية بين حجم الإنفاق الحكومي والنمو الاقتصادي، سعيًا لاختبار فرضية منحنى أرمي في الاقتصاد المصري، وتحديد الحجم الأمثل للإنفاق الحكومي الذي يعظم النمو الاقتصادي. وقد قامت الدراسة بتطبيق نموذج الانحدار الذاتي ذي الفجوات الموزعة الموسع augmented autoregressive distributed lag (AARDL) على بيانات سلاسل زمنية تخص الاقتصاد المصري وتغطي الفترة الممتدة من 1970 إلى 2022. هذا، وقد استخدمت الدراسة الإنفاق الحكومي الاستهلاكي منسوبًا إلى الناتج المحلي الإجمالي بوصفه مؤشرًا لحجم الحكومة، ومعدل النمو السنوي في الناتج المحلي الإجمالي الحقيقي بوصفه مؤشرًا إلى النمو الاقتصادي. وقد توصلت الدراسة إلى وجود تكامل مشترك بين متغيرات النموذج، وإلى تحقق فرضية منحنى أرمي في الاقتصادي المصري، وأن الحجم الأمثل للإنفاق الحكومي الاستهلاكي يمثل 13.2% من الناتج المحلي الإجمالي. وكي تحقق الدولة أقصى استفادة ممكنة من التدخل في النشاط الاقتصادي، توصي الدراسة بضرورة أن تعمل الدولة في إطار تلك النسبة مع مراعاة اعتبارات الكفاءة في الإنفاق، وترتيب الأولويات، أخذًا في الحسبان الجوانب الاجتماعية لتلك النفقات.
This article investigates the relationship between the size of the government expenditure and economic growth and estimates the optimal size of the government expenditure for Egypt by using the share of government consumption expenditure to GDP as an indicator of government size. For this purpose, an augmented autoregressive distributed lag (AARDL) bounds test for cointegration is applied using annual data from 1970 to 2022. Results show a non-linear relationship of the Armey curve in Egypt, with the optimal share of government consumption expenditure to GDP being 13.2%. These findings have some policy implications.
This study aims to empirically test the Armey Curve hypothesis (optimal government size) for Turkey with panel data consisting of 81 provinces and 17 years. In this context, a quadratic model has been established in which economic growth is the dependent variable, and public expenditures are the independent variable. AMG estimates obtain the optimal size of public expenditures. The results indicate that the optimal level of public expenditures is 25.2%. Moreover, province-specific findings provide that the Armey curve is valid in 16 provinces, and the critical point of the curve takes values ranging from 12%(Istanbul) to 46%(Elazig). Considering the average volume of public expenditures is 31.6% throughout the panel, it is concluded that the expenditures exceed the optimal level. These results show that public expenditures are in the region of diminishing returns. Therefore, in order to maximize the growth rate, public expenditures should be reduced to an optimal level.
Bu çalışmada Türkiye'de 1960-2019 dönemi için Armey eğrisinin geçerliliği araştırılmıştır. Bağımlı değişken, ekonomik büyümeyi temsilen GSYH'nin logaritmik farkı; bağımsız değişken, devletin ekonomideki boyutunu temsilen kamu harcamalarının GSYH içerisindeki payıdır. Seriler geleneksel birim kök testlerinin ardından içsel ve dışsal yapısal kırılmalı birim kök testleriyle incelenmiş; her iki serinin de kırılmalı trend durağan olduğu sonucuna ulaşılmıştır. Sonrasında devletin ekonomideki optimal boyutunu tespit etmek için oluşturulan ikinci dereceden polinom OLS yöntemiyle tahmin edilmiş; kamu harcamalarının GSYH içerisindeki payı yaklaşık %26 olarak kestirilmiştir. Bu bağlamda anılan paydan ortak toplumsal ihtiyaçların karşılanmasından sonra kalacak harcama tutarının verimli alanlara kanalize edilmesi, bu yapılırken de objektif bilimsel kriterler kullanılması önerilmektedir.
