The effect of government spending on macroeconomic stability

Macroeconomic stability plays essential role on the performance of governments and attaining economic development. Therefore, governments can displace the demand curve and achieve different goals such as economic development and growth by considering financial instruments, which are available for them. Thus, the present study aims at investigating the effect of government spending on the stability of macro-economy for the time interval 1979- 2011 using the Johansen-Juselius method. The results indicate that the variables of goods price index and services as well as government investment spending had positive effects and variables of exchange free rate, government consumption spending, and government tax revenues had negative effects on economic development.

Macro-economy stability The Johansen-Juselius method Government spending