Causality between public wage bill, exports and economic growth in Slovenia

This article aims to investigate the causal relationship between economic growth, exports and public wage bill spending, using the Johansen cointegration, Granger causality test, variance decomposition (VDC) and impulse response function (IRF). The empirical investigation focuses on the case of a small open and export-oriented Slovenian economy, where public wage bill spending accounts for a sizable share of public expenditure. The results show a significant impact of public wage bill spending on exports. Reduction of public wage bill spending should be adapted to the circumstances in the economy to assure financial consolidation.