• Aleksandar VASILEV University of Lincoln, UK


In this paper we provide a theoretical basis for the so-called” Armey curve,” the inverted U-shape relationship between the level of government purchases and GDP growth, named after Armey (1995). We use an otherwise standard Keynesian model, augmented with a quadratic relationship between investment and lagged government expenditure, which was documented empirically. This modelling approach is a useful shortcut that aims to capture the common link shared by both variables, namely their dependence on the real interest rate, as suggested also by the extended static IS-LM model. This resulting dynamic relationship is a newly documented stylized fact, at least in Bulgarian data for the period 2000-2018, and the source in the extended Keynesian model that generates an Armey curve for Bulgaria.


[1] Afonso, A. and Furceri, D. 2010. Government size, composition, volatility and economic growth. European Journal of Political Economy, 26: 517-32. DOI:
[2] Armey, R. 1995. The freedom revolution. Washington, DC: Rogney Publishing Co
[3] Arpaia, A. and Turrini. 2007. Government expenditure and economic growth in the EU: long-run tendencies and short-run adjustment. SSRN paper 2004461/ 2007.
[4] Barro, R.J. 1990. Government spending in a simple model of economic growth. Journal of Political Economy, 98: 103-125. DOI:
[5] Dar, A., and Amirkhalkhali, S. 2002. Government size, factor accumulation, and economic growth: evidence from OECD countries. Journal of Policy Modeling, 24: 679-692. DOI:
[6] Easterly, W. and Rebelo, S. 1993. Fiscal policy and economic growth. Journal of Monetary Economics, 32: 417-458. DOI:
[7] Engen, E.M. and Skinner, J.S. 1992. Fiscal policy and economic growth. NBER Working Paper
[8] Folster, S. and Henrekson, M. 2001. Growth effects of government expenditure and taxation in rich countries. European Economic Review, 45: 1501-1520.
[9] Gwartney, J., Holcombe, R., and Lawson, R. 1998. The Scope of Government and the Wealth of Nations. The Cato Journal, 18: 163-64.
[10] Lin, S.A. 1994. Government spending and economic growth. Applied Economics, 26: 83-94.
[11] Sattar, Z. 1993. Public expenditure and economic performance: A comparison of developed and low-income developing countries. Journal of International Development, 5: 27-49.
[12] Sheehey, E.J. 1993. The Effect of government size on economic growth. Eastern Economic Journal, 321-328.
[13] Vasilev, A. 2015b. Modeling Real Private Consumption Expenditure in Bulgaria after the Currency Board Implementation (1997-2005). Zagreb International Review of Economics and Business, 18: 81-89. DOI:
[14] Vasilev, A. 2015a. Welfare effects of flat income tax reform: the case of Bulgaria. Eastern European Economics, 53: 205-220. DOI:
[15] Wagner, A. 1883. Finanzwissenschaft, Leipzig.
[16] National Statistical Institute. Aggregate Statistical Indicators. Available on-line at
How to Cite
VASILEV, Aleksandar. THE ARMEY CURVE IN BULGARIA (2000-18) – THEORETICAL CONSIDERATIONS AND EMPIRICAL RESULTS. Theoretical and Practical Research in the Economic Fields, [S.l.], v. 11, n. 1, p. 21-26, july 2020. ISSN 2068-7710. Available at: <>. Date accessed: 06 aug. 2020. doi: