The effect of government expenditures on the economic and institucional dimension of governance in European countries

Abstract

The aim of the study is to examine the effect of government expenditures on institutional and economic dimensions of governance from the standpoint of selected indicators. We evaluate the effect of government expenditures on selected governance indicators (government effectiveness, regulatory quality and the control of corruption) according to two dimensions (institutional and economic dimension of governance). The research covers the period 2002-2021, applying a panel data analysis and the fixed effects method on the sample of 29 European countries. For the purposes of further examination, the European countries are divided into two groups (by GDP per capita in PPS). The results confirmed the effect of differing categories of government expenditures on the evaluated indicators of governance between European countries with higher and lower economic levels. European countries with a higher economic level manifested the strongest positive effect of government expenditures on secondary education and expenditures on police services in relation to the economic dimension of governance (government effectiveness and regulatory quality). The results of countries with a lower economic level show that the control of corruption is affected, both positively and negatively, by government expenditures on education. Government expenditures on pre-primary and primary education had the largest impact in the economic dimension of governance in relation to the reduction of government effectiveness and government expenditures on sporting and recreational services in terms of the reduction of regulatory quality. The reached findings can be beneficial to creators of public policies at all levels of public administration in the creation of concepts and strategic goals.