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Growth and the Public Sector: a Reply

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  • Agell, J.
  • Lindh, T.
  • Ohlsson, H.

Abstract

Fvlster and Henrekson (1998) claim that they, by addressing a number of econometric problems, can establish that it is likely that economies with a large public sector grow more slowly than economies with a small public sector. But their regressions are fundamentally flawed. Re-estimating their growth equation using theoretically valid instruments, we find that the growth effect of the public sector is statistically insignificant, and much smaller than the point-estimates reported by Fvlster and Henrekson. This is consistent with the agnostic conclusion, drawn by us and many others, that cross-country growth regressions are unlikely to give a reliable answer to whether a large public sector is growth promoting or retarding.

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Bibliographic Info

Paper provided by Uppsala - Working Paper Series in its series Papers with number 1999:1.

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Length: 10 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:fth:uppaal:1999:1

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Postal: UPPSALA UNIVERSITY, DEPARTMENT OF ECONOMICS, S-751 20 UPPSALA SWEDEN.
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Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Keywords: PUBLIC EXPENDITURES ; PUBLIC SECTOR ; ECONOMIC GROWTH;

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References

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  1. Agell, Jonas & Lindh, Thomas & Ohlsson, Henry, 1997. "Growth and the public sector: A critical review essay," European Journal of Political Economy, Elsevier, vol. 13(1), pages 33-52, February.
  2. Andres, Javier & Domenech, Rafael & Molinas, Cesar, 1996. "Macroeconomic performance and convergence in OECD countries," European Economic Review, Elsevier, vol. 40(9), pages 1683-1704, December.
  3. Mendoza, Enrique G. & Milesi-Ferretti, Gian Maria & Asea, Patrick, 1997. "On the ineffectiveness of tax policy in altering long-run growth: Harberger's superneutrality conjecture," Journal of Public Economics, Elsevier, vol. 66(1), pages 99-126, October.
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Citations

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Cited by:
  1. Arief Ramayandi, 2003. "Economic Growth And Government Size In Indonesia: Some Lessons For The Local Authorities," Working Papers in Economics and Development Studies (WoPEDS) 200302, Department of Economics, Padjadjaran University, revised Jul 2003.
  2. Petroulas, Pavlos, 2004. "Short-Term Capital Flows and Growth in Developed and Emerging Markets Pavlos," Research Papers in Economics 2004:4, Stockholm University, Department of Economics.
  3. Christoph Schaltegger & Benno Torgler, 2006. "Growth effects of public expenditure on the state and local level: evidence from a sample of rich governments," Applied Economics, Taylor and Francis Journals, vol. 38(10), pages 1181-1192.
  4. Peter H. Lindert, 2003. "Why the Welfare State Looks Like a Free Lunch," NBER Working Papers 9869, National Bureau of Economic Research, Inc.
  5. Kalle Kukk, 2007. "Fiscal Policy Effects on Economic Growth: Short Run vs Long Run," Working Papers 167, Tallinn School of Economics and Business Administration, Tallinn University of Technology.
  6. Agell, Jonas & Ohlsson, Henry & Skogman Thoursie, Peter, 2003. "Growth Effects of Government Expenditure and Taxation in Rich Countries: A Comment," Research Papers in Economics 2003:14, Stockholm University, Department of Economics.
  7. Gemmell, Norman, 2001. "Fiscal Policy in a Growth Framework," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  8. R. Schoonackers & F. Heylen, 2011. "Fiscal Policy and TFP in the OECD: A Non-Stationary Panel Approach," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/701, Ghent University, Faculty of Economics and Business Administration.
  9. repec:ebl:ecbull:v:8:y:2007:i:4:p:1-7 is not listed on IDEAS
  10. Ismael Sanz & Francisco J. Velázquez, 2001. "The evolution and convergence of the government expenditure composition in the OECD countries: an analysis of the functional distribution," Public Economics 0111005, EconWPA.
  11. Lindert, Peter, 2002. "Why the Welfare Looks Like a Free Lunch," Working Papers 02-7, University of California at Davis, Department of Economics.
  12. Norman Gemmell & Richard Kneller, 2003. "Fiscal Policy, Growth and Convergence in Europe," Treasury Working Paper Series 03/14, New Zealand Treasury.
  13. Nijkamp, Peter & Poot, Jacques, 2004. "Meta-analysis of the effect of fiscal policies on long-run growth," European Journal of Political Economy, Elsevier, vol. 20(1), pages 91-124, March.
  14. Felicity C Barker & Robert A Buckle & Robert W St Clair, 2008. "Roles of Fiscal Policy in New Zealand," Treasury Working Paper Series 08/02, New Zealand Treasury.
  15. Hrushikesh Mallick, 2008. "Government Spending, Trade Openness and Economic Growth in India: A Time Series Analysis," Working Papers id:1809, eSocialSciences.
  16. Julian Ramajo & Javier Salinas & Francisco Pedraja & Miguel Márquez, 2007. "Competition in the allocation of public spending: a new model to analyse the interaction between expenditure categories," Economics Bulletin, AccessEcon, vol. 8(4), pages 1-7.
  17. Jakee, Keith & Sun, Guang-Zhen, 2005. "External habit formation and dependency in the welfare state," European Journal of Political Economy, Elsevier, vol. 21(1), pages 83-98, March.

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