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Is Government Expenditure Volatility Harmful for Growth? A Cross-Country Analysis

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Author Info
Davide Furceri

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Abstract

The aim of the paper is to analyse the relationship between government expenditure volatility and long-run growth. Using cross-country panel data from 1970 to 2000, the paper finds that countries with higher government expenditure business-cycle volatility have lower growth, even after controlling for other country-specific growth correlates such as investment, government expenditure, human capital, population growth and output volatility. This relation is robust to different measures of business cycles. Moreover, considering different subsamples, the paper finds that while government volatility significantly affects long-run growth for developing countries, it has a small effect for OECD countries. Copyright 2007 Institute for Fiscal Studies.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1475-5890.2007.00049.x
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Publisher Info
Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 28 (2007)
Issue (Month): 1 (03)
Pages: 103-120
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Handle: RePEc:ifs:fistud:v:28:y:2007:i:1:p:103-120

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  1. Dimitrios Varvarigos, 2007. "Volatile public spending in a model of money and sustainable growth," Discussion Paper Series 2007_18, Department of Economics, Loughborough University, revised Jul 2007. [Downloadable!]
  2. António Afonso & Davide Furceri, 2008. "Government size, composition, volatility and economic growth," Working Paper Series 849, European Central Bank. [Downloadable!]
    Other versions:
  3. Maria Grydaki & Stilianos Fountas, 2008. "Exchange Rate Volatility and Output Volatility: a Theoretical Approach," Discussion Paper Series 2008_16, Department of Economics, University of Macedonia, revised Dec 2008. [Downloadable!]
    Other versions:
  4. Davide Furceri & Marcos Poplawski Ribeiro, 2008. "Government spending volatility and the size of nations," Working Paper Series 924, European Central Bank. [Downloadable!]
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