All post‐socialist countries began the transition process towards a market economy with very high shares of public expenditures in their gross domestic product. The policy question these countries face is whether to decrease the public expenditure rate (PER), and if so, to what level. Another question is whether the change in the PER will affect their economic growth perspectives. Seeks to answer these questions. Discusses the theoretical relation between PER and the rate of economic growth, defines growth neutral public expenditure rate and estimates it empirically. Assesses the empirical relationship between PER and economic growth rate in a cross‐country analysis, and presents findings that economic growth in the cross‐country analysis cannot be explained by the public expenditure rate, nor by the deviations from growth neutral PER.
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