Acta Univ. Agric. Silvic. Mendelianae Brun. 2011, 59(7), 415-422 | DOI: 10.11118/actaun201159070415

Relationship between government spending and economic growth in the Czech Republic

Irena Szarowská
Katedra financí, Obchodnì podnikatelská fakulta, Slezská univerzita Opava, Univerzitní nám. 1934/3, 733 40 Karviná, Èeská republika

This article aims to provide direct empirical evidence on business cycle relations between government spending and economic growth in the Czech Republic. Government spending plays an important role in a fiscal policy as a possible automatic stabilizer. We analyzed annual data on government spending in compliance with the COFOG international standard. We use cross-correlation on cyclically filtered adjusted time series over the period 1995-2008. The cyclical properties of GDP and government spending function were, in average, found as weakly correlated. However, we report considerable differences in correlations across the spending functions. The lowest correlation coefficient (0.06) was found for recreation, culture and religion and the highest average was reported for economic affairs (-0.51). As regards to using government spending as the stabilizer, total government spending, general public services, defense, economic affairs and education spending were negative correlated and it confirms countercyclical relation between these spending functions and GDP. It is in line with theory suggestion. On the other hand, the highest spending function (social protection) correlated weak positive and it expresses procyclical development.
The results of Johansen cointegration test proved the existence of long-run relationship between GDP and total government spending, GDP and public order and safety spending and GDP and economic affairs spending.

Keywords: government spending, cyclicality, economic growth, correlation, cointegration
Grants and funding:

This article ensued thanks to the support of the grant GA ÈR 403/11/2073 Procyclicality of financial markets, asset price bubbles and macroprudential regulation.

Received: August 29, 2011; Published: January 26, 2014  Show citation

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Szarowská, I. (2011). Relationship between government spending and economic growth in the Czech Republic. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 59(7), 415-422. doi: 10.11118/actaun201159070415
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