Guns, highways and economic growth in the United States

Given its significant policy implications, the nexus between public expenditures and economic growth has been the subject of an extensive and often emotive theoretical and empirical debate. The nexus between two types of public expenditures and economic growth is examined in this paper using both linear and nonlinear causality tests. Both spending on highways and on defence are regarded, albeit with not the same intensity of conviction, as useful counter-cyclical policy instruments and as stimuli to economic growth. Findings reported herein from both linear and non-linear causality tests offer evidence in support for the growth enhancing properties of the former type of public spending but not so in the case of military expenditure.

► Public spending widely seen as a stimulus for the economy during recessions ► Nexus between two types of public expenditures and growth examined ► Linear and nonlinear causality tests used ► Bidirectional causality between growth and highway spending revealed ► Only unidirectional causality from growth to military spending established