Advanced Search
MyIDEAS: Login to save this article or follow this journal

Government size, composition, volatility and economic growth

Contents:

Author Info

  • Afonso, António
  • Furceri, Davide

Abstract

This paper analyses the effects in terms of size and volatility of government revenue and spending on growth in OECD and EU countries. The results of the paper suggest that both variables are detrimental to growth. In particular, looking more closely at the effect of each component of government revenue and spending, the results point out that i) indirect taxes (size and volatility); ii) social contributions (size and volatility); iii) government consumption (size and volatility); iv) subsidies (size); and v) government investment (volatility) have a sizeable, negative and statistically significant effect on growth.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6V97-4YJ4N3Y-4/2/d8e8406adbafd13dd3cc2b9c1931cef5
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 26 (2010)
Issue (Month): 4 (December)
Pages: 517-532

as in new window
Handle: RePEc:eee:poleco:v:26:y:2010:i:4:p:517-532

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505544

Related research

Keywords: Fiscal policy Government size Fiscal volatility Economic growth;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Afonso, António & Furceri, Davide, 2007. "Business cycle synchronization and insurance mechanisms in the EU," Working Paper Series, European Central Bank 0844, European Central Bank.
  2. S. Rao Aiyagari & Lawrence J. Christiano & Martin Eichenbaum, 1990. "The Output, Employment, and Interest Rate Effects of Government Consumption," NBER Working Papers 3330, National Bureau of Economic Research, Inc.
  3. Canova, Fabio & Pappa, Evi, 2004. "Does it Cost to be Virtuous? The Macroeconomic Effect of Fiscal Constraints," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4747, C.E.P.R. Discussion Papers.
  4. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  5. Pindyck, Robert S. & Solimano, Andrés., 1993. "Economic instability and aggregate investment," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 3552-93., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  6. Francesco Daveri & Guido Tabellini, . "Unemployment, Growth and Taxation in Industrial Countries," Working Papers 122, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. Folster, Stefan & Henrekson, Magnus, 2001. "Growth effects of government expenditure and taxation in rich countries," European Economic Review, Elsevier, Elsevier, vol. 45(8), pages 1501-1520, August.
  8. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  9. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  10. Marianne Baxter & Robert G. King, 1995. "Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series," NBER Working Papers 5022, National Bureau of Economic Research, Inc.
  11. Levinson, Arik, 1998. "Balanced Budgets and Business Cycles: Evidence from the States," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 715-32, December.
  12. Beck, Morris, 1982. "Toward a Theory of Public Sector Growth," Public Finance = Finances publiques, , , vol. 37(2), pages 163-77.
  13. Alan T. Peacock & Jack Wiseman, 1961. "The Growth of Public Expenditure in the United Kingdom," NBER Books, National Bureau of Economic Research, Inc, number peac61-1, July.
  14. Sala-i-Martin, Xavier, 1997. "I Just Ran Two Million Regressions," American Economic Review, American Economic Association, American Economic Association, vol. 87(2), pages 178-83, May.
  15. Schnabl, Gunther, 2007. "Exchange rate volatility and growth in small open economies at the EMU periphery," Working Paper Series, European Central Bank 0773, European Central Bank.
  16. Afonso, António & St. Aubyn, Miguel, 2008. "Macroeconomic rates of return of public and private investment: crowding-in and crowding-out effects," Working Paper Series, European Central Bank 0864, European Central Bank.
  17. Easterly, William & Rebelo, Sérgio, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 885, C.E.P.R. Discussion Papers.
  18. Selma Mahfouz & Richard Hemming & Michael Kell, 2002. "The Effectiveness of Fiscal Policy in Stimulating Economic Activity," IMF Working Papers 02/208, International Monetary Fund.
  19. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
  20. Lane, Philip R., 2003. "The cyclical behaviour of fiscal policy: evidence from the OECD," Journal of Public Economics, Elsevier, Elsevier, vol. 87(12), pages 2661-2675, December.
  21. Alesina, Alberto & Wacziarg, Romain, 1998. "Openness, country size and government," Journal of Public Economics, Elsevier, Elsevier, vol. 69(3), pages 305-321, September.
  22. Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
  23. Liutang Gong & Heng-fu Zou, 2002. "Effects of Growth and Volatility in Public Expenditures on Economic Growth: Theory and Evidence," Annals of Economics and Finance, Society for AEF, vol. 3(2), pages 379-406, November.
  24. Plosser, Charles I., 1992. "The search for growth," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 57-86.
  25. Bayoumi, Tamim & Masson, Paul R., 1995. "Fiscal flows in the United States and Canada: Lessons for monetary union in Europe," European Economic Review, Elsevier, Elsevier, vol. 39(2), pages 253-274, February.
  26. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers 7911, National Bureau of Economic Research, Inc.
  27. Alberto Alesina & Tamim Bayoumi, 1996. "The Costs and Benefits of Fiscal Rules: Evidence from U.S. States," NBER Working Papers 5614, National Bureau of Economic Research, Inc.
  28. Antonio Fatás & Ilian Mihov, 2003. "The Case For Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(4), pages 1419-1447, November.
  29. Mankiw, N.G., 1991. "The Reincarnation of Keynesian Economoics," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1572, Harvard - Institute of Economic Research.
  30. Rose, Andrew K., 2006. "Size really doesn't matter: In search of a national scale effect," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 482-507, December.
  31. Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band pass filter," Working Paper 9906, Federal Reserve Bank of Cleveland.
  32. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 29(1), pages 1-16, February.
  33. Afonso, António & Schuknecht, Ludger & Tanzi, Vito, 2003. "Public sector efficiency: an international comparison," Working Paper Series, European Central Bank 0242, European Central Bank.
  34. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda, Federal Reserve Bank of Chicago 88-7, Federal Reserve Bank of Chicago.
  35. Evans, Paul & Karras, Georgios, 1994. "Are Government Activities Productive? Evidence from a Panel of U.S. States," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 1-11, February.
  36. K Blackburn & D Varvarigos, 2005. "Growth, Uncertainty and Finance," Centre for Growth and Business Cycle Research Discussion Paper Series, Economics, The Univeristy of Manchester 48, Economics, The Univeristy of Manchester.
  37. Brunetti, Aymo, 1998. "Policy volatility and economic growth: A comparative, empirical analysis," European Journal of Political Economy, Elsevier, Elsevier, vol. 14(1), pages 35-52, February.
  38. Gali, Jordi, 1994. "Government size and macroeconomic stability," European Economic Review, Elsevier, Elsevier, vol. 38(1), pages 117-132, January.
  39. James M. Poterba, 1993. "State Responses to Fiscal Crisis: The Effects of Budgetary Institutionsand Politics," NBER Working Papers 4375, National Bureau of Economic Research, Inc.
  40. Leamer, Edward E, 1983. "Let's Take the Con Out of Econometrics," American Economic Review, American Economic Association, American Economic Association, vol. 73(1), pages 31-43, March.
  41. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
  42. Martin Zagler & Georg Dürnecker, 2003. "Fiscal Policy and Economic Growth," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 17(3), pages 397-418, 07.
  43. Fatas, Antonio & Mihov, Ilian, 2001. "Government size and automatic stabilizers: international and intranational evidence," Journal of International Economics, Elsevier, Elsevier, vol. 55(1), pages 3-28, October.
  44. Stock, James H. & Watson, Mark W., 1999. "Business cycle fluctuations in us macroeconomic time series," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 1, pages 3-64 Elsevier.
  45. Andrew K. Rose, 2006. "Size Really Doesn't Matter: In Search of a National Scale Effect," NBER Working Papers 12191, National Bureau of Economic Research, Inc.
  46. Christian Zimmermann, 1995. "International Trade over the Business Cycle: Stylized Facts and Remaining Puzzles," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 37, CREFE, Université du Québec à Montréal, revised Aug 1997.
  47. Nouriel Roubini & Jeffrey Sachs, 1989. "Government Spending and Budget Deficits in the Industrial Economies," NBER Working Papers 2919, National Bureau of Economic Research, Inc.
  48. Margarita Katsimi, . "Explaining the Size of the Public Sector," Economics Discussion Papers, University of Essex, Department of Economics 461, University of Essex, Department of Economics.
  49. Davide Furceri, 2010. "Long-run growth and volatility: which source really matters?," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 42(15), pages 1865-1874.
  50. Morris Altman, 1992. "Business Cycle Volatility in Developed Market Economies, 1870-1986: Revisions and Conjectures," Eastern Economic Journal, Eastern Economic Association, vol. 18(3), pages 259-275, Summer.
  51. Fatás, Antonio & Mihov, Ilian, 2004. "The Macroeconomic Effects of Fiscal Rules in the US States," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4372, C.E.P.R. Discussion Papers.
  52. Dimitrios Varvarigos & Keith Blackburn, 2005. "Growth, Uncertainty and Finance," Money Macro and Finance (MMF) Research Group Conference 2005, Money Macro and Finance Research Group 12, Money Macro and Finance Research Group.
  53. Andrea Bassanini & Stefano Scarpetta & Philip Hemmings, 2001. "Economic Growth: The Role of Policies and Institutions: Panel Data. Evidence from OECD Countries," OECD Economics Department Working Papers 283, OECD Publishing.
  54. Peacock, Alan & Scott, Alex, 2000. " The Curious Attraction of Wagner's Law," Public Choice, Springer, Springer, vol. 102(1-2), pages 1-17, January.
  55. Romero-Ávila, Diego & Strauch, Rolf, 2008. "Public finances and long-term growth in Europe: Evidence from a panel data analysis," European Journal of Political Economy, Elsevier, Elsevier, vol. 24(1), pages 172-191, March.
  56. Philippe Aghion & George-Marios Angeletos & Abhijit Banerjee & Kalina Manova, 2005. "Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment," NBER Working Papers 11349, National Bureau of Economic Research, Inc.
  57. Afonso, António & Ebert, Werner & Schuknecht, Ludger & Thöne, Michael, 2005. "Quality of public finances and growth," Working Paper Series, European Central Bank 0438, European Central Bank.
  58. Davide Furceri, 2007. "Is Government Expenditure Volatility Harmful for Growth? A Cross-Country Analysis," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 28(1), pages 103-120, 03.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:poleco:v:26:y:2010:i:4:p:517-532. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.