The Armey curve: an empirical analysis of selected Balkan countries and Russia for the period 2006–2019

Abstract

The subject of the analysis is to check the validity of the Armey curve which is frequently used in the scientific literature and to establish the optimal level of the public sector. The aim of the present study is to analyze the impact of the public sector through public expenditure on the possibility of achieving economic growth. The estimation is based on annual data for the period 2006–2019 of selected Balkan countries and Russia. The authors apply the ordinary least squares (OLS) method for a nonlinear regression model. The conclusion is that the Armey curve is valid for some of the countries involved in the research among which Serbia, North Macedonia and Russia. The public expenditure to Gross Domestic Product ratio’s threshold value, which maximizes economic growth, ranges from 32.94 to 42.37%. The average share of public expenditure in the analyzed countries is approximately equal to the threshold values that are obtained which is indicative of achievement to some extent the desired economic performance. However, the results of the study show that the growth of the public sector and its impact on economic development should not be underestimated.

Keywords

• armey curve
• public expenditure
• economic growth
• balkan countries
• russia