Does Government Ideology Affect the Relationship Between Government Spending and Economic Growth?

This study examines whether government ideology affects the relationship between government spending and economic growth in eighty eight countries from 1975 to 2017 using dynamic panel estimators. Previous studies have overlooked the role of government ideology, which can influence economic policies such as government spending. The results show that government spending is negative and significant to economic growth, while left‐wing governments are associated with economic growth. However, when moderating for government ideology, the findings show that the marginal effect of government spending is positive for right‐wing governments, while the marginal impact of government spending is negative for left‐wing governments. The results imply that government spending policies must be aligned with the respective government ideology in order to benefit from further economic growth. Policy implications are discussed.