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Business & Economics

LOCAL GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH: THE EVIDENCE OF ROMANIAN COUNTIES
Irina Bilan, Florin Oprea, Elena Cigu, Carmen (Sandu) Toderascu

ABSTRACT. Our study investigates the relationship between local public expenditures and local GDP growth rates for 42 Romanian counties and seven consecutive years (2007-2013), with the aim to evaluate the extent to which the expenditure policies of Romanian local governments (reflected in the level and composition of local budgetary expenses) have contributed to supporting the economic growth. Basically, a linear growth regression model with individual and time fixed effects is estimated, where overall local expenses and their structural (economic and functional) components are considered as explanatory variables. The main finding of this article is that local expenses have no positive effect on the territorial economic growth (the result is, to various degrees, confirmed for all expenditures, more for the interest and social security and less for the capital or transportation ones), mainly due to their poor management and the lack of a result-orientated vision. With regard to the identified shortcomings, specific policy recommendations are drawn to improve the efficacy of local expenditure .

KEYWORDS:  local public expenditures, economic and functional structure of expenditures, economic growth, Romanian counties, fixed effects model.

JEL classification:  O4, O40, O47, H7, H72.