Abstract:

The effectiveness of fiscal policies is a widely debated issue in the economics literature. While the classical theory argues that government expenditures crowd out the private sector, the Keynesian theory proposes to increase government expenditures to solve the problem of demand insufficiency. Many previous studies examine the relationship between government expenditures and macroeconomic performance indicators, such as unemployment and growth. However, it is frequently stated that these indicators are not alone an indicator of the performance of an economy. Therefore, new indicators are being developed to measure macroeconomic performance behalf. This study investigates the relationship between expenditures and macroeconomic performance over the period 2002-2019 by applying panel data analysis in 28 OECD countries. The Barro Index is used as a macroeconomic performance indicator. F test, LM test, and Hausman test were applied to select the model. As a result of these tests, the fixed effects model was determined as the model. After testing the basic assumptions, the Driscoll-Kraay standard error estimator was used as a method. According to the results, an increase in government expenditures positively affects the macroeconomic performance of countries.

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