Jeyhun Abbasov

Azerbaijan State University of Economics, Economic and Technological Sciences department, 

Baku, Azerbaijan.

Azerbaijan Technical University, Economics and statistics department, 

Baku, Azerbaijan;

Institute of Control Systems, Ministry of Science and Education, 

Baku, Azerbaijan

E-mail: ceyhunabbasoglu@gmail.com

0000-0001-8187-441X

A new simple test to evaluate the efficiency of government spending

Abstract. The main purpose of this study is to determine the conditions that enable optimal distribution of the government revenues between capital and current expenditures, one that would maximize the firms’ and households’ utility and provide the maximum impact of the government expenditures on economic growth rate. Research indicates that for such optimal distribution of the budget to be defined, the derivatives of output functions with respect to the government capital expenditure and the government current expenditure must be equal. The obtained theoretical results serve as a basis for a test that analyzes the efficiency of the allocation of government revenues between current and capital expenditure items. The test is based on intervals established at significance levels of 0.01-0.99. If the difference between the marginal value of the production function with respect to the government's current and capital expenditure falls into any of these established intervals, the distribution of government expenses in these two directions can be considered effective at the level of significance corresponding to that interval. Research results found that governments usually cannot efficiently allocate their revenues between capital and current expenditures.

Received: October, 2022

1st Revision: March, 2023

Accepted: September, 2023

DOI: 10.14254/2071-789X.2023/16-3/6

JEL Classification: C61, E62, F43, H5

Keywords: optimal composition, government expenditures, households’ utility, economic growth rate, efficiency of the government spending