THE VALIDITY OF EFFICIENCY AND COMPENSATION HYPOTHESIS FOR G7 COUNTRIES

Abstract

National economies tend to protect individuals from external risks that depend mostly as a result of globalization of the trade. There is question that needs an answer at that point; the increase in the government expenditures is a result of the fact that increasing population or the compensation hypothesis? In order to answer that question, openness ration, government expenditures, gross domestic product per capita and population will be analyzed in order for G7 using panel data for the period 1980-2015. The empirical test will check the validity of the compensation and efficiency hypothesis. According to test results, only in Japan and Canada compensation hypothesis is valid for the selected period. On the other hand, the increase in the government expenses has no causality relation with the increase in the population.