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Abstract


THE ANALYSIS OF ABRAMS CURVE FOR SELECTED EUROPEAN COUNTRIES

The Abrams curve is an analysis that reveals the relationship between unemployment and the economic size of the government. Accordingly, there is a positive relationship between unemployment and government size. Abrams says, larger government impose higher income taxes and provide public health and unemployment insurance. This situation leads to lower the cost of leisure to the individual. Also, large public sector may hinder the functioning of the labor market due to the regulations it has brought. In addition, as the government grows, it reduces the size of the private sector. The unemployment created by this is getting harder to absorb by the other part of the private sector. In this study, the relationship between the share of public expenditures in Gross Domestic Product (GDP) and unemployment was tested for the 18-years period between 1995 and 2012 for 15 selected European countries. Panel data cointegration analysis was used for analysis. A positive relationship was found between unemployment and public economic size, in accordance with the Abrams curve. In addition, growth data was used as a control variable and in accordance with the literature, a negative relationship was found between growth and unemployment.



Keywords
unemployment, government expenditure, panel data analysis, cointegration.



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