Government Expenditures and Economic Growth: A Cointegration Analysis for Thailand under the Floating Exchange Rate Regime

Jiranyakul, Komain (2020): Government Expenditures and Economic Growth: A Cointegration Analysis for Thailand under the Floating Exchange Rate Regime.

Abstract

Contributing to the controversial issue on the impact of government spending on economic growth, this paper shows that government spending has long-run impact in stimulating aggregate output in Thailand during the floating exchange rate regime. The results reveal that the long-run relationship between aggregate output, government expenditures and private consumption is stable. Based on quarterly dataset during 1997Q3 to 2019Q4, the results suggest that expansionary fiscal policy is effective under the floating exchange rate regime. Furthermore, the traditional version of the Wagner’s law is supported since an expansion in aggregate output causes government expenditure to increase. Therefore, the findings in this paper support both Keynesian hypothesis and the Wagner’s law.

• Item Type: MPRA Paper
• Language: English
• Keywords: Government expenditures, real GDP, cointegration, causality
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy

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