Testing the Armey Curve Hypothesis in Turkey: Evidence from the Provincial Data

Authors : Devran ŞANLI

Pages : 425-443

Doi:10.25229/beta.1206552

View : 20 | Download : 10

Publication Date : 2022-12-31

Article Type : Research Paper

Abstract :This study aims to empirically test the Armey Curve hypothesis insert ignore into journalissuearticles values(optimal government size); for Turkey with panel data consisting of 81 provinces and 17 years. In this context, a quadratic model has been established in which economic growth is the dependent variable, and public expenditures are the independent variable. AMG estimates obtain the optimal size of public expenditures. The results indicate that the optimal level of public expenditures is 25.2%. Moreover, province-specific findings provide that the Armey curve is valid in 16 provinces, and the critical point of the curve takes values ranging from 12%insert ignore into journalissuearticles values(Istanbul); to 46%insert ignore into journalissuearticles values(Elazig);. Considering the average volume of public expenditures is 31.6% throughout the panel, it is concluded that the expenditures exceed the optimal level. These results show that public expenditures are in the region of diminishing returns. Therefore, in order to maximize the growth rate, public expenditures should be reduced to an optimal level.
Keywords : Optimal Public Expenditures, Economic Growth, Armey Curve, Panel AMG