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Growth Effects of Government Expenditure and Taxation in Rich Countries

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  • Fölster, Stefan

    ()
    (The Swedish Research Institute of Trade)

  • Henrekson, Magnus

    ()
    (Dept. of Economics, Stockholm School of Economics)

Abstract

A number of cross-country comparisons do not find a robust negative relationship between government size and economic growth. In part this may reflect the prediction in economic theory that a negative relationship should exist primarily for rich countries with large public sectors. In this paper an econometric panel study is conducted on a sample of rich countries covering the 1970-95 period. Extended extreme bounds analyses are reported based on a regression model that tackles a number of econometric issues. Our general finding is that the more econometric problems are addressed, the more robust the relationship between government size and economic growth appears. Our most complete specifications are robust even according to the stringent extreme bounds criterion.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 391.

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Length: 18 pages
Date of creation: 20 Jun 2000
Date of revision:
Publication status: Published in European Economic Review, 2001, pages 1501-1520.
Handle: RePEc:hhs:hastef:0391

Note: Published in the European Economic Review, 2001
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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-(0)8-736 90 00
Fax: +46-(0)8-31 01 57
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Web page: http://www.hhs.se/
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Keywords: Economic growth; Extreme bounds analysis; Fiscal Policy; Government expenditure; Public sector; Taxation; Cross-country regressions; Panel regressions; Robustness test.;

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References

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