Public Finance and The Size of Government: A Literature Review and Econometric Results for Fiji

Abstract

This paper analyses current government expenditure in Fiji using annual time series data for the period 1969-1999. Alternative theories of government expenditure are reviewed and a distinction is made between economic/apolitical determinants and institutional/political determinants. Categorising the literature in this way suggests the application of non-nested tests in empirical work. The first step is to estimate the two models separately. All four test statistics for non-nested hypotheses lead to the conclusion of double rejection. A parsimonious comprehensive model, encompassing both economic and institutional variables, is preferred as it passes all diagnostic tests and involves the acceptance conclusion from pairwise non-nested tests.