Endogenous growth testing in the European Union and developing countries: Taxation, public expenditure and growth

Thesis Type: Postgraduate

Institution Of The Thesis: Orta Doğu Teknik Üniversitesi, Graduate School of Social Sciences, Department of Economics, Turkey

Approval Date: 2003


Supervisor: AYSIT TANSEL


In endogenous growth models, in contrast to the neoclassical growth models, government expenditure and taxation have an effect on the long run growth rate. In this thesis I examine whether the empirical evidence support the predictions of endogenous growth models or the neoclassical growth models in relation to fiscal policy. For this purpose I use panel data for fifteen European Union (EU) member and thirty-three developing countries between the years 1970 and 1999. I specifically test the following two propositions. The first proposition states that distortionary taxation decreases growth while non-distortionary taxation does not. The second, states that productive government expenditure increases growth while non-productive expenditure does not. The empirical results are quite different between European Union countries and developing countries. The results do not support endogenous growth especially for developing countries.