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Government Size and Unemployment: Evidence from Industrial Countries

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  • Horst Feldmann

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Abstract

Using data from 19 industrial countries for the period 1985 to 2002, this paper analyzes how the size of the government sector affects unemployment. Controlling for the impact of the business cycle as well as for the impact of all major labor market institutions and unobserved country effects, we find that a large government sector is likely to increase unemployment. It appears to have a particularly detrimental effect on women and the low skilled and to substantially increase long-term unemployment. It seems that dominant stateowned enterprises, a large share of public investment in total investment as well as high top marginal income tax rates and low income threshold levels at which they apply are particularly detrimental. Copyright Springer Science+Business Media, Inc. 2006

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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 127 (2006)
Issue (Month): 3 (June)
Pages: 443-459

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Handle: RePEc:kap:pubcho:v:127:y:2006:i:3:p:443-459

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Web page: http://www.springerlink.com/link.asp?id=100332

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  1. Zenon Kontolemis G. & Dimitri G. Demekas, 1999. "Government Employment and Wages and Labor Market Performance," IMF Working Papers 99/55, International Monetary Fund.
  2. Jim Malley & Thomas Moutos, 1992. "Does Government Employment "Crowd-Out" Private Employment?: Evidence from Sweden," Working Papers Series 92/16, University of Stirling, Division of Economics.
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  7. Michèle Belot & Jan C. van Ours, 2004. "Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labor market reforms?," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 621-642, October.
  8. Yuan, M. & Li, W., 1999. "Dynamic Employment and Hours Effects of Government Spending Shocks," Working Papers 99-1, Bank of Canada.
  9. Bertola, Giuseppe & Drazen, Allan, 1991. "Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity," CEPR Discussion Papers 599, C.E.P.R. Discussion Papers.
  10. Carmen Pagés-Serra, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  11. Karras, Georgios, 1993. "Employment and Output Effects of Government Spending: Is Government Size Important?," Economic Inquiry, Western Economic Association International, vol. 31(3), pages 354-69, July.
  12. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
  13. Jim Malley & Thomas Moutos, . "Government Employment and Unemployment: With One Hand Giveth, the Other Taketh," ICMM Discussion Papers 47, Department of Economics University of Strathclyde.
  14. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
  15. Horst Feldmann, 2005. "Labour Market Institutions and Labour Market Performance in Transition Countries," Post-Communist Economies, Taylor & Francis Journals, vol. 17(1), pages 47-82.
  16. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November.
  17. Dimitris Christopoulos & Efthymios Tsionas, 2002. "Unemployment and government size: Is there any credible causality?," Applied Economics Letters, Taylor & Francis Journals, vol. 9(12), pages 797-800.
  18. Bjorn Volkerink & Jan-Egbert Sturm & Jakob de Haan, 2001. ""Tax ratios in macroeconomics: Do taxes really mater?," European Economy Group Working Papers 7, European Economy Group.
  19. Abrams, Burton A, 1999. " The Effect of Government Size on the Unemployment Rate," Public Choice, Springer, vol. 99(3-4), pages 395-401, June.
  20. Horst Feldmann, 2003. "Labor Market Regulation and Labor Market Performance: Evidence Based on Surveys among Senior Business Executives," Kyklos, Wiley Blackwell, vol. 56(4), pages 509-540, November.
  21. Alberto Alesina & Roberto Perotti, 1994. "The Welfare State and Competitiveness," NBER Working Papers 4810, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Feldmann, Horst, 2009. "The unemployment effects of labor regulation around the world," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 76-90, March.
  2. Siyan Wang & Burton A. Abrams, 2011. "The Effect of Government Size on the Steady-State Unemployment Rate: A Dynamic Perspective," Working Papers 11-12, University of Delaware, Department of Economics.
  3. Davide Furceri, 2012. "Unemployment and Labor Market Issues in Algeria," IMF Working Papers 12/99, International Monetary Fund.
  4. Lorenzo E. Bernal-Verdugo & Davide Furceri & Dominique M. Guillaume, 2012. "Labor Market Flexibility and Unemployment," IMF Working Papers 12/64, International Monetary Fund.
  5. Burton A. Abrams & Siyan Wang, 2007. "The Effect of Government Size on the Steady-State Unemployment Rate: An Error Correction Model," Working Papers 07-14, University of Delaware, Department of Economics.
  6. Horst Feldmann, 2009. "The quality of the legal system and labor market performance around the world," European Journal of Law and Economics, Springer, vol. 28(1), pages 39-65, August.
  7. Burton A. Abrams & Siyan Wang, 2007. "Government Outlays, Economic Growth and Unemployment: A VAR Model," Working Papers 07-13, University of Delaware, Department of Economics.
  8. Davide Furceri & Ernesto Crivelli & Joël Toujas-Bernate, 2012. "Can Policies Affect Employment Intensity of Growth? A Cross-Country Analysis," IMF Working Papers 12/218, International Monetary Fund.
  9. Olfa Alouini, 2009. "Country size, economic performance and the political economy of the euro zone : an empirical study of the size divide," Documents de Travail de l'OFCE 2007-01, Observatoire Francais des Conjonctures Economiques (OFCE).
  10. Alberto Behar & Junghwan Mok, 2013. "Does Public-Sector Employment Fully Crowd Out Private-Sector Employment?," IMF Working Papers 13/146, International Monetary Fund.
  11. Burton A. Abrams & Siyan Wang, 2006. "The Effect of Government Size on the Steady-State Unemployment Rate: A Structural Error Correction Model," Working Papers 06-05, University of Delaware, Department of Economics.
  12. Horst Feldmann, 2008. "Business regulation and labor market performance around the world," Journal of Regulatory Economics, Springer, vol. 33(2), pages 201-235, April.
  13. Horst Feldmann, 2012. "Product Market Regulation and Labor Market Performance around the World," LABOUR, CEIS, vol. 26(3), pages 369-391, 09.

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