Prague Economic Papers 2017, 26(2):142-154 | DOI: 10.18267/j.pep.600

Government Size and Economic Growth in Turkey: A Threshold Regression Analysis

Pelin Varol Iyidogan1, Taner Turan2
1 Department of Public Finance, Hacettepe University, Beytepe-Ankara, Turkey (pelinv@hacettepe.edu.tr)
2 Department of Economics, Gebze Technical University, Gebze-Kocaeli, Turkey (turantaner01@yahoo.com)

We examine the relationship between the government size and economic growth by using threshold regression model and quarterly data over the period 1998:1-2015:1 for Turkey. Our results provide a strong evidence for the existence of a non-linear relationship. The estimated threshold levels, as a percentage of GDP, are 16.5 for the government total expenditures, 12.6 for consumption expenditures and 3.9 for investment expenditures. We find that an increase in the government size leads to a significant rise (decline) in economic growth rate when the government size is below (above) the threshold level, confirming the predictions of Armey curve. Our findings have a clear policy implication: since the realized government consumption and total expenditures are well above the estimated threshold levels, a reduction in the government size would boost the growth rate.

Keywords: economic growth, government size, non-linearity, threshold estimations
JEL classification: E60, E62, H00, H50

Prepublished online: September 8, 2016; Published: April 1, 2017  Show citation

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Iyidogan, P.V., & Turan, T. (2017). Government Size and Economic Growth in Turkey: A Threshold Regression Analysis. Prague Economic Papers26(2), 142-154. doi: 10.18267/j.pep.600
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