Abstract

This article investigates the relationship between cash payments for operating activities of the government in providing goods and services, subsidies and other transfers, other expenses, interest payments, goods and services expenses, and compensation of employees in five countries over the period 1995-2020 via Pooled Mean Group (PMG) estimator. The series are non-stationary with a time-dependent structure. Bidirectional, unidirectional and independent interactions exist between some indicators in the model. ARDL (1,2,2,2,2,2) for two lags at the constant level trend specification was selected out of the four models that were apparent. The deviation from the long-run equilibrium rate in the government expenses is corrected separately for Belgium, Germany, Netherlands, Norway, and the United Kingdom by 17.41%, 19.82%, 63.37%, 10.18%, and 51.95% the following year; besides, Netherland is more speedily to the adjustment followed by the United Kingdom. All the countries jointly take a speed of -0.325452 to return back to equilibrium; consequently, the deviation from the long-run equilibrium rate in government expenses is determined by 32.55% in the succeeding year. In the long run, subsidies and other transfers, interest payments, goods and services expenses, and compensation of employees resulted in negative effects on government expenses; In contrast, other expenses bring about a positive weight of 35.20% on government expenses. Convincingly, other expenses have a more significant effect on government expenses’ fluctuation for the sub-region; interest payments have a more significant effect on subsidies and other transfers’ fluctuation for the sub-region; also, compensation of employees have a more significant effect on goods and services expenses’ fluctuation for the sub-region.

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