PUBLIC SPENDING AND UNEMPLOYMENT: DATA FROM EUROZONE COUNTRIES

Abstract

The relationship between public spending and unemployment is an important topic of study in economics. Public spending was seen as the main cause of rising unemployment, contrary to the idea that it would contribute to the reduction of unemployment. The present paper studies the relationship between the unemployment rate and public spending in a panel of 16 EU states, covering the period 1990–2019 panel and generalized method of moments (GMM) to estimate our dynamic panel data model, which also takes into account the lagged unemployment rate. The model results indicate that public expenditure has a significant positive impact on unemployment. These results confirm the existence of the Abrams curve and the relationship between these two variables is positive.