Convergence in public expenditures across EU countries: evidence from club convergence

Abstract

The goal of the present article is to investigate the degree of convergence in public expenditures for a panel of 17 European Union member countries spanning the period 1990 to 2012. We apply the methodology of Phillips and Sul (2007) to various categories of public expenditures to assess the existence of convergence clubs. Overall, the results do not support the hypothesis that all countries converge to a single equilibrium state in various public expenditures.

Acknowledgements

We thank the comments made by a referee that enhanced substantially the quality of an earlier draft. We also thank Donggyu Sul for making the Gauss code available to us. A sample code can be downloaded from Donggyu Sul's homepage: http://homes.eco.auckland.ac.nz/dsul013/. Needless to say, the usual disclaimer applies

Notes

¹In this paper, we set .

²Appendix B of PS reports the analytic proof under the convergence hypothesis for this regression equation.

³Following the recommendation of PS, we choose r-values in the interval [0.2, 0.3].

⁴The log t test exhibits favourable asymptotic and finite sample properties.

⁵The PS methodology is semi-parametric, while it is robust to different forms of transitional dynamics and does not fall in the category of classical time series convergence tests. Consequently, we expect that it would behave relatively well in the presence of structural breaks.