Chen, Xiaodong, Mi, Haoming and Zhou, Peng  ORCID: https://orcid.org/0000-0002-4310-9474
2025.
Interdependence of government expenditure among European countries: Productivity spillover and strategic interaction.
Economic Inquiry
10.1111/ecin.70032
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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.
| Item Type: | Article |
|---|---|
| Date Type: | Published Online |
| Status: | In Press |
| Schools: | Schools > Business (Including Economics) |
| Publisher: | Wiley |
| ISSN: | 0095-2583 |
| Date of First Compliant Deposit: | 8 November 2025 |
| Date of Acceptance: | 10 October 2025 |
| Last Modified: | 10 Nov 2025 12:30 |
| URI: | https://orca.cardiff.ac.uk/id/eprint/182234 |
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