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<p>In this paper, based on a quarterly dataset of G7 countries with the application of a nonlinear ARDL model we test for the presence of a short-run and long-term asymmetry in the relationship between government spending and economic activity. The main aim of this study is to analyze the relationship between government spending and economic activity in two separate scenarios, first, in periods when government spending increases and, second, in periods when government spending decreases. Our key findings are, first, the linear model that produces a positive relationship between government consumption and economic activity. Second, in the nonlinear model, more than half of the short-run and long-run coefficients are statistically significant. Third, short-run and long-run asymmetry are detected in four out of seven cases with recognized short-run asymmetry also in the remaining three cases based on graphical analysis. Finally, a negatively inclined short-run asymmetry is detected. The results thus imply a stronger output effect in periods of declining dynamics in government consumption. Future research should be focused on broadening the sample countries and model by adding additional variables.</p>
</abstract>

In this paper, based on a quarterly dataset of G7 countries with the application of a nonlinear ARDL model we test for the presence of a short-run and long-term asymmetry in the relationship between government spending and economic activity. The main aim of this study is to analyze the relationship between government spending and economic activity in two separate scenarios, first, in periods when government spending increases and, second, in periods when government spending decreases. Our key findings are, first, the linear model that produces a positive relationship between government consumption and economic activity. Second, in the nonlinear model, more than half of the short-run and long-run coefficients are statistically significant. Third, short-run and long-run asymmetry are detected in four out of seven cases with recognized short-run asymmetry also in the remaining three cases based on graphical analysis. Finally, a negatively inclined short-run asymmetry is detected. The results thus imply a stronger output effect in periods of declining dynamics in government consumption. Future research should be focused on broadening the sample countries and model by adding additional variables.

Is There Asymmetry in the Relationship Between Government Consumption Dynamics and Economic Activity? Evidence From G7 Economies

PhD Student at the University of Maribor, Faculty of Economics and Business

Naše gospodarstvo/Our economy

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

In this paper, based on a quarterly dataset of G7 countries with the application of a nonlinear ARDL model we test for the presence of a short-run and...

Is There Asymmetry in the Relationship Between Government Consumption Dynamics and Economic Activity? Evidence From G7 Economies

Article Category: ORIGINAL SCIENTIFIC PAPER

Published Online: Dec 30, 2021

Page range: 1 - 12

Received: Nov 01, 2021

Accepted: Nov 01, 2021

DOI: https://doi.org/10.2478/ngoe-2021-0018

Keywords
fiscal policy, nonlinear ARDL model, G7 countries

© 2021 Author(s), published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Is There Asymmetry in the Relationship Between Government Consumption Dynamics and Economic Activity? Evidence From G7 Economies

Article Category: ORIGINAL SCIENTIFIC PAPER

Published Online: Dec 30, 2021

Page range: 1 - 12

Received: Nov 01, 2021

Accepted: Nov 01, 2021

DOI: https://doi.org/10.2478/ngoe-2021-0018

Keywordsfiscal policy, nonlinear ARDL model, G7 countries

© 2021 Author(s), published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
fiscal policy, nonlinear ARDL model, G7 countries