Public Expenditure and Economic Growth: A Systematic Review of Empirical Evidence and Methodological Limitations

Abstract

Whether government spending promotes or retards economic growth remains unresolved after four decades of research. This review synthesizes 21 empirical studies from Scopus, following PRISMA 2020 guidelines, covering studies from 1992 to 2025 on single-country time-series and cross-country panels. Eleven studies find a positive effect, two find a negative effect, four show effects varying with expenditure composition or public sector size, two find no significant link, and two suggest causality runs from growth to expenditure. The variation is systematic: positive results cluster in studies disaggregating spending and estimating long-term relationships; negative and null results appear in studies of aggregate spending, recurrent expenditure, or contexts with weak institutions. Methodologically, most studies use the autoregressive distributed lag bounds test, which establishes cointegration but not causal direction, leaving results ambiguous between Wagnerian and Keynesian views. Common weaknesses include short samples, unaddressed endogeneity, lack of structural break analysis, and aggregation bias. The review suggests that the growth impact of public expenditure depends on conditions, not universality, and much disagreement arises from methodological differences rather than economic fundamentals.