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Uncovering the Dimensions of the Common Good - Problems of Measurement of the Size of the Public Sector

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  • Reino Hjerppe
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    Abstract

    There are problems in the measures of the size of the public sector both from the perspective of welfare state policies, monetary policy and the analysis of the economic role of public sector in general. In practice there are several different measures (e.g. total tax rate, total government expenditures /GDP, government value added/GDP, public consumption plus investments/ GDP). These give quite different values of the size of the government, and the ranking of countries in international comparisons changes depending on what measure is used. In closer inspection it appears that very few indicators are internationally comparable. For example the meaning of the total tax rate differs depending on the tax system in a country. Some countries tax income transfers and some others do not. It is, therefore, not easy to get comparable information about the net financial burden of the welfare state. In monetary policy the size of the public sector has become important because of the EMU criteria. The indebtedness of the government (debt/GDP) as an EMU criterion is defined on the basis of gross debt. Countries have, however, in different extent loan receivables. Therefore countries position with respect to EMU-criteria might change if net debt would be used as a measure of indebtedness. The paper analyses the size of the public sector from several different perspectives. Since it is difficult to get a holistic idea about the size of the public sector, it is recommended that in the connection of national accounts a special satellite system should be developed in order to better serve different analytical purposes where the size of the public sector in the economy is needed.

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    Bibliographic Info

    Paper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 322.

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    Date of creation: 23 Dec 2003
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    Handle: RePEc:fer:dpaper:322

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    Keywords: the size of the public sector; the total tax rate; total public expenditures; value added of the government sector; public consumption; public investments; EMU-criteria; public assets and liabilities; public regulation; public-private partnership projects;

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    1. Cornes,Richard & Sandler,Todd, 1996. "The Theory of Externalities, Public Goods, and Club Goods," Cambridge Books, Cambridge University Press, number 9780521477185.
    2. Robert E. Lucas Jr., 2003. "Macroeconomic Priorities," American Economic Review, American Economic Association, vol. 93(1), pages 1-14, March.
    3. Stiglitz, Joseph E., 2002. "New perspectives on public finance: recent achievements and future challenges," Journal of Public Economics, Elsevier, vol. 86(3), pages 341-360, December.
    4. Koskela, Erkki & Viren, Matti, 2003. "Government Size and Output Volatility: New International Evidence," Discussion Papers 857, The Research Institute of the Finnish Economy.
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