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BUSINESS AND ECONOMICS RESEARCH JOURNAL

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Article Information
Journal: Business and Economics Research Journal
Title of Article: The Impact of Government Size on Output Volatility: Evidence from World Economies
Author(s): Gamze Oz-Yalaman, Deniz Sevinc, Guven Sevil
Volume: 10
Number: 4
Year: 2019
Page: 761-776
ISSN: 2619-9491
DOI Number: 10.20409/berj.2019.199
Abstract
One of the most important goals of policy-makers is to achieve macroeconomic stability, which could significantly be affected by output volatility. In an effort to provide insights with regard to macroeconomic stability, this study aims to model the volatility of output by using univariate GARCH models and to examine the impact of government size on output volatility by using extensive data set from eight different classifications of world economies for the period between 1960 and 2017. The study also employs the Granger Causality Analysis to determine the direction of this relationship. The results provide strong evidence for a negative relation between government size and output volatility. Output volatility is largely dependent on its own shocks and negatively influenced by outside shock as government size. Moreover, confirming Keynesian Hypothesis, the results show that there is mostly one-way causality from government size to output volatility. The results are robust in terms of different classifications of world economies, different measurements of output volatility, different methodologies and controlling for the effect of different sets of exogenous variables.

Keywords: Output Volatility, Government Expenditure, Univariate GARCH Model, Granger Causality

JEL Classification: C01, H5, N10, O47

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