investment outlays. For 119 developed and developing countries during the period of 1974 to 1989, they find a negative relationship between government consumption and growth, but a clear positive link between public investment and growth.

When we focus on most recent studies, conflicting results still continue to be found. One of the recent papers by Schaltegger and Torgler (2006) suggests that large public expenditure lowers growth for high-income countries. Folster and Henrekson (2001) suggest that the more the econometric problems that are addressed, the more robust the link between government size and economic growth gets, while Agell, Ohlsson, and Thoursie (2006) object to this finding, indicating that there is no robust relationship between growth and the share of government expenditure. In his paper, Park (2006) tests whether the combination of productive public investment and lower taxes increases growth and whether current government consumption and higher taxes lower it. He cannot find any robust empirical results using a set of countries combining both developed and developing countries. Gupta, Clements, Baldacci, and Mulas-Granados (2005) show that government expenditure, especially its capital component, has a positive impact on growth for low-income countries when it is combined with a lower budget deficit. Baldacci, Clements, Gupta, and Cui (2008) indicate that, with explicit control for governance, and incorporation of nonlinearity, both education and health spending support higher growth in developing countries. Segura-Ubiergo, Simone, Gupta, and Cui (2009) present a positive impact of fiscal adjustment on growth in transition economies. Wahab (2004) and Colombier (2009), focusing on OECD countries, and Ang (2009), studying the case of Malaysia, all support the significance of public capital expenditure for growth.

Even when the papers that use empirical specifications or estimation techniques similar to ours are investigated, conflicting empirical results continue. Kneller, Bleaney, and Gemmell (1999) and Bleaney, Gemmell, and Kneller (2001), including 22 developed countries, support Barro (1990): productive expenditure is good for growth, but distortionary taxes lower its impact. Bose, Haque, and Osborn (2007) introduce government financing variables (government budget surplus/deficit and tax revenue) in a study where they focus on a panel of 30 developing countries over the 1970s and 1980s. They find that while the capital component of government expenditure, especially education expenditure, is positively linked to growth, the current component does not have any significant impact on economic growth. Similarly, Ghosh and Gregoriou (2008) and Benos (2009) take account of the revenue side of the government budget constraint considering tax and non-tax revenues, and also the government budget balance. Both papers use a GMM technique for panel datasets. But, they find conflicting results. Benos (2009) show that a reallocation of the components of government spending, especially toward infrastructure and human capital, can enhance growth using 14 European Union countries, while Ghosh and Gregoriou (2008), for a group of 15 developing countries, show that the current component of spending has a positive impact on growth while the capital component influences it negatively.

While most empirical studies in the literature use a heterogeneous sample of countries to investigate the relationship between government spending and growth, Moreno-Dodson 6