Government size,composition of public spending and economic growth in Brazil |
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Institution: | 1. Graduate Program of Economics, Catholic University of Brasilia, SGAN 916, Office A-118, Zip: 70790-000, Brasilia, DF, Brazil;2. Graduate Program of Economics, Catholic University of Brasilia, Brazil;1. Department of Management, Università Politecnica delle Marche, Ancona, Italy;2. Department of Economics and Social Science, Università Politecnica delle Marche, Ancona, Italy;1. Graduate School of Economics, Kobe University, 2-1 Rokko-dai, Nada, Kobe, 657-8501, Japan;2. Institute of Social and Economic Research, Osaka University, 6-1, Mihogaoka, Ibaraki, Osaka, 567-0047, Japan;1. Department of Economics, Feliciano School of Business, Montclair State University, Montclair, NJ, 07043, USA;2. Department of Economics, School of Social Sciences, College of Humanities, Arts, & Social Sciences, Nanyang Technological University, Singapore |
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Abstract: | The performance of the fiscal policy is largely affected by the relationship between government size, composition of public spending and economic growth. We use a theoretical framework to find optimal relations among these variables and confront them with a panel data for the Brazilian states. Private capital and government spending are substitute inputs in production as the Brazilian states require provision of public spending to fill gaps in the underdeveloped private sector. Public investment and current government expenditures are combined in fixed ratios in the overall government spending due to strong rigidity of the public budget. The optimal share of public investment is considerably lower than current expenditures, as occurs in developing countries characterized by low economic dynamism. Finally, the average tax burden from the data is below the estimated optimal level, meaning that there is space for increasing tax rate without harming economic growth for some Brazilian states. |
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Keywords: | Public spending Optimal tax rate Economic growth Elasticity of substitution C23 E62 H21 |
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