Study on the Effect of Government Spending on GDP Growth

Abstract

Based on the above analytical results, it was concluded that, from the auto-regression model analysis for the relationship of governmental non-tax revenue expenditure and GDP growth, the original hypotheses is supported by this empirical data analysis. The results show that governmental purchasing expenditure has a positive effect with private capital formation, and this is represented by the positive impact on long-run economic growth. However, it cannot be substantiated that government’s fundamental construction funding contributes significantly to the long-run economic growth. Nonetheless, it was found that non-tax revenue expenditure has some strong positive impact on short-run economic growth, though not significantly for the long-run GDP growth. Therefore, the impact of this part of government spending on GDP growth should not be ignored.