Does the composition of public expenditure affect economic growth? Evidence from the Swiss case

Abstract

In the light of tightening budget constraints caused by the recent financial and economic crisis and population ageing, it has become increasingly important to explore which portfolio of public expenditure generates economic growth. This article, therefore, estimates the growth effects of the composition of public expenditure for the Swiss case. One main finding is that public expenditures on transport infrastructure, education and administration foster growth. As nonhigh-quality data, which can bias least square estimators, are pervasive in economics, statistically robust estimation methods are applied.

Keywords:

• fiscal policy
• economic growth
• composition of public expenditure
• robust estimator

JEL Classification:

• C22
• E62
• H50

Acknowledgements

The author thanks M. Gisiger, J. Hartwig, B. Parnisari, M. Pickhardt, B. Schlaffer and an anonymous referee for valuable comments and suggestions. Any remaining errors are the author's responsibility. Finally, the view of the author does not necessarily reflect the official position of the Federal Finance Administration or the Federal Finance Department.

Notes

¹For a detailed description of public expenditure categories, see Classifications of the Functions of Government (COFOG), United Nations Statistics Division.

²Shortening the period 1960 to 2005 by 5 years, that is, 1965 to 2005, does not change the results regarding the growth impact of public expenditure items.