Public Expenditure, Taxation and Economic Growth: Empirical Evidence from Latin America

Abstract

A renewed interest in the effects of fiscal policy on economic growth has surged as a result of the 2009 recession. Endogenous growth models combine these two elements together, and so this type of model presents a natural framework for the analysis of the relationship between fiscal policy and growth. This major paper tests the prediction of the endogenous growth model of Barro (1990) about the effects of government expenditure and taxation on long-run growth in Latin America. An endogenous growth model is used with a full specification of the government budget constraint to account for the biases of omitting it in empirical research. The model is applied and tested for a panel dataset of 19 Latin American countries, 1990-2010.