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Growth and the Public Sector: A reply

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  • Agell, Jonas

    ()
    (Department of Economics)

  • Lindh, Thomas

    ()
    (Department of Economics)

  • Ohlsson, Henry

    ()
    (Department of Economics)

Abstract

Fölster 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 Fölster 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 University, Department of Economics in its series Working Paper Series with number 1999:1.

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Length: 10 pages
Date of creation: 19 Dec 1998
Date of revision:
Publication status: Published in European Journal of Political Economy, 1999, pages 359-366.
Handle: RePEc:hhs:uunewp:1999_001

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Keywords: economic growth; public sector; taxation; government expenditure; cross-country regressons;

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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. Atkinson, Anthony B., 1995. "The Welfare State and Economic Performance," National Tax Journal, National Tax Association, vol. 48(2), pages 171-98, June.
  3. 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.
  4. Asea, Patrick & Mendoza, Enrique G & Milesi-Ferretti, Gian Maria, 1996. "On the Ineffectiveness of Tax Policy in Altering Long- Run Growth: Harberger's Superneutrality Conjecture," CEPR Discussion Papers 1378, C.E.P.R. Discussion Papers.
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