The impact of Public expenditure on domestic product in Kuwait

(Hussein Ali Age)

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Abstract

This paper is an attempt to evaluate the effect of the components of Government Expenditure on domestic non-oil output and its components in the case of Kuwait using annual data covering the period from 1970 to 2004. The data were first tested for stationarity and co-integration, the results of these tests indicate that the variables are stationary in their first difference and cointegrated. Then a VAR system was estimated to asses the impact of government expenditure componenents on domestic non-oil output and its components, the results show that government consumption has a positive impact on non-oil output as well as agriculture and services, and a negative impact on industry. The impact of government investment expendiure is found to be positive on non-oil output as well as on industry and services, and a negative impact on agriculture, finaly, the impact of government transfers is found to nigative on non-oil output as well as on industry and sevices, and positive on agriculture. Concerning the size of the impact of government expenditure components, the results indicate that 92% of the variation in both non-oil output and services is explained by these components, while their contribution to the variation in industry and agriculture are 62% and 49% respectively. The overall implication of these results is that both consumption and investment expenditure have a positive impact on non-oil output, while transfers have a negative impact, this stresses the importance of the first two types, reflecting the possible absesnce of crowding-out effect and the non existence of an income tax system in the country.
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