COMPONENTS OF GOVERNMENT EXPENDITURES AND ECONOMIC GROWTH RELATIONSHIP IN TURKEY: WAGNER OR KEYNES?

Sevinç YARAŞIR TÜLÜMCE ¹ , Nihal YAYLA ²

The relationship between economic growth and government expenditure is one of the frequently discussed issues in the economic literature. This debate, which gathered pace especially after the 1960s, had originated from the theories of Wagner and Keynes. While Wagner argues that economic growth promotes government expenditures, according to Keynes government expenditures give rise to economic growth. This study analyzes the relationship between government expenditures and economic growth for the period of 1988-2016 in the Turkey, in the context of both theories. Government expenditures are disaggregated subject to economic and functional classification and relationship between the disaggregated government expenditures and economic growth is analyzed by using VAR technique and Granger Causality tests. Findings of VAR analysis illustrate that there is a relationship between transfer payments (component of economic classification of government expenditures) and current expenditures with growth, and also between defense and social security spending (components of functional classification of government expenditures) and growth. Granger Causality tests support the Keynesian theory for economic classification and the Wagner hypothesis for functional classification of government expenditures. In substance, there is causality from current expenditures economic classification) to growth and from growth to education expenditures (functional classification) in Turkey.

Keywords
Government Expenditures, Growth, VAR and Granger Causality, Wagner Theory, Keynesian Theory,