ASSESSMENT OF UKRAINE’S STATE BUDGET EXPENDITURES IN THE CONTEXT OF THEIR IMPACT ON ECONOMIC GROWTH
Abstract
The role of public finance in the national economy is of great importance. Significant amount of financial resources concentrated in this component of the financial system provide an opportunity for the government to influence socio-economic development, in particular through stimulating economic growth. The article reveals the relationship between State budget’s total expenditures and a number of macroeconomic indicators based on the use of Pearson and Fechner cor-relation coefficients. To determine the impact of State budget expenditures on eco-nomic growth in Ukraine we build Vector Error Correction Model (VECM) which includes real gross domestic product as a measure of economic growth, recurrent and capital public expenditures measured as proportions of nominal gross domestic product for the period from the first quarter of 2011 to the second quarter of 2021. Specifications of the model are determined by using the Augmented Dickey-Fuller test, Johansen Cointegration test and a number of information criteria. The results of the model were verified by using the Granger causality test. Impulse response functions and FEVD (Forecast Error Variance Decomposition) were built. As a result, it was found that the overall growth of Ukraine’s State budget expenditures has a positive effect on the real gross domestic product of the country. Moreover, the impact of capital expenditures is much more significant than the impact of cur-rent expenditures. Additionally, we build a simple unrestricted vector autoregres-sion (VAR) model to identify the impact of certain areas of government expendi-tures on economic growth. We find that expenditures on education, health care and economic activity in Ukraine are factors of real GDP growth, which, however, is not true for expenditures on social protection and social security. We attribute the weak impact of government expenditures on economic growth to both inefficient use of budget funds and sub-optimal structure of expenditures by functional areas, and therefore propose measures that will provide additional opportunities to boost economic development.
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