Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324441 
Year of Publication: 
2025
Series/Report no.: 
Cardiff Economics Working Papers No. E2025/15
Publisher: 
Cardiff University, Cardiff Business School, Cardiff
Abstract: 
We build an endogenous growth model that distinguishes productive and welfare government expenditures and embeds fiscal externalities. The model yields three testable hypotheses: (i) productive expenditure raises growth (Barro effect); (ii) productive expenditure generates cross-country productivity spillovers; (iii) government expenditure structure exhibits spatial dependence. Estimation with a spatial-panel dataset for 30 European economies (EU27+3) corroborates all three hypotheses. We further show that positive productivity externalities induce an international free-rider problem, causing systematic under-investment in productive expenditure, while negative welfare externalities trigger a "welfare tournament" and over-spending on non-productive expenditure.
Subjects: 
Fiscal Interdependence
Productivity Spillover
Strategic Interaction
SpatialPanel
Government Expenditure
Endogenous Growth
JEL: 
E62
R58
Document Type: 
Working Paper

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