Importance The share of public expenditure in the Russian gross domestic product (GDP) has increased during recent years. The economic slowdown has become a serious problem. All of these underline the importance of the impact of fiscal policy on GDP long-term trends. Objectives The study aims to evaluate the threshold share of public expenditure in GDP, above which the public spending will negatively affect the growth rate of output. Methods I use general equilibrium models to analyze the channels of government spending's impact on the economic growth, and econometric techniques of panel data analysis to estimate the threshold of the public spending share. Results Based on literature review, I conclude that the impact of government spending on economic growth is described by an inverted U-shaped curve. The critical review of results and methods used in empirical studies helps determine an appropriate approach to estimating the optimal public expenditure share. According to the estimates, the threshold share of public expenditure is within 10 to 26% of GDP. The share of consolidated budget expenditures in the Russian economy exceeds this threshold. Conclusions For most of commodity-exporting countries, the impact of government spending on economic growth is negative. It means that these countries are on the downward sector of the inverted U-shaped curve. Further increase in the share of public spending in GDP of Russia may lead to lower economic growth. The econometric analysis results indicate that the Government should reduce the share of public spending in GDP to stimulate the economic growth in Russia.
Keywords: government size, economic growth, threshold share, government expenditure
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