The Appropriate Mix of Government Spending and Taxation: How to Promote Economic Growth?

Nowadays, it is necessary to examine appropriate fiscal policy so that it supports economic growth while being sustainable. Therefore the aim of the paper is to find out what is the effect of different types of government spending and taxes on economic growth in developed economies. From a methodological point of view, panel data estimation is used for 27 OECD countries in the period 1997-2011. Model includes particular types of government spending, taxes revenue and state budget deficit. The results of the analysis show that only spending on defense, education and health, and general public services have positive effect on economic growth. In addition, we show that improve of unproductive government spending through revenue from direct taxes negatively affects the growth.