The impact of government expenditure in the economic growth in Serbian economy

The primary aim of this paper is to examine the impact of the government size (government expenditure) on the overall economic activity in the Republic of Serbia. This is very important issue in context of formulation an appropriate fiscal policy. Toda-Yamamoto procedure and regression analysis were used as suitable methodological frame. Time span is Q1 2003-Q3 2014. Empirical results suggest negative slope of regression curve. Also, there is unidirectional causality, from economic growth to government expenditure. A larger share of government expenditure in the structure of aggregate demand does not have positive impact on economic growth in Serbia. Macroeconomic implications of the study suggest the need for improving quality of institutions, government efficiency and reduction the level of corruption activities in Serbia.