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The Size of Government and U.S.-European Differences in Economic Performance

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  • Gerwin Bell
  • Norikazu Tawara
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    Abstract

    An influential strand of recent research has claimed that large governments in European countries explain their weaker long-term economic performance compared to the U.S. On the other hand, despite these alleged costs, large governments have been popular with electorates. This paper seeks to shed light on this apparent inconsistency; it confirms an adverse effect of taxes on labor supply, but also finds evidence of efficiency-increasing government intervention. However, and especially in the core "Rhineland-model" European countries, actual government policies often depart from such efficient interventions, pointing to the possibility that voters prefer redistribution even at the cost of allocational efficiency.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/92.

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    Length: 51
    Date of creation: 01 Apr 2009
    Date of revision:
    Handle: RePEc:imf:imfwpa:09/92

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    Related research

    Keywords: Public finance; National income; Government expenditures; Economic models; labor supply; labor market; unemployment; employment; labor market policies; employment protection; job search; unemployed; unemployment rate; labor share; long-term unemployment; labor market institutions; jobs; labor market efficiency; unemployment ratio; unemployed worker; labor markets; active labor; job opening; labor economics; labor productivity; labor market friction; job-seekers; active labor market policies; job seekers; labor market policy; employment rate; unemployment spells; labor supplies; employment protection legislation; labor market participants; active labor market; unemployment insurance;

    This paper has been announced in the following NEP Reports:

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    1. Kennan, John, 1988. "An Econometric Analysis of Fluctuations in Aggregate Labor Supply and Demand," Econometrica, Econometric Society, vol. 56(2), pages 317-33, March.
    2. Disney Richard, 2004. "Are contributions to public pension programmes a tax on employment?," Economic Policy, CEPR & CES & MSH, vol. 19(39), pages 267-311, 07.
    3. Casey B. Mulligan, 1998. "Pecuniary Incentives to Work in the United States during World War II," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 1033-1077, October.
    4. Robert E. Hall, 1998. "Macroeconomic Fluctuations and the Allocation of Time," NBER Working Papers 5933, National Bureau of Economic Research, Inc.
    5. Lei Fang & Richard Rogerson, 2011. "Product Market Regulation and Market Work: A Benchmark Analysis," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 163-88, April.
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