ECIN Replication Package for "Interdependence of government expenditure among European countries: Productivity spillover and strategic interaction"

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.