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Exploring Cross-Country Variation in Government Shares: What Can We Learn from Relative Productivities?

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  • Maksym Obrizan

    ()
    (Kyiv School of Economics, Kyiv Economics Institute)

Abstract

Government shares in total output are characterized by significant variation across countries. As a starting point of my study, I notice strong negative correlation between government consumption share and price of government services in terms of private consumption. Motivated by this empirical observation, I develop a neoclassical growth model with added government that is capable of matching the variation in government shares very closely using only relative prices. In addition, I provide empirical evidence showing that the relative price of government consumption increases in income which is consistent with distortions prevailing in poor countries. These two observations combined imply that government shares tend to be higher in poorer countries.

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File URL: http://repec.kse.org.ua/pdf/KSE_dp25.pdf
File Function: May 2010
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Bibliographic Info

Paper provided by Kyiv School of Economics in its series Discussion Papers with number 25.

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Date of creation: Jun 2010
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Handle: RePEc:kse:dpaper:25

Note: Submitted to Macroeconomic Dynamics
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Keywords: Government consumption; Relative government shares; Relative international prices; Neoclassical growth model; the Penn World Table;

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References

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  1. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Relative Prices and Relative Prosperity," American Economic Review, American Economic Association, vol. 97(3), pages 562-585, June.
  2. Ram, Rati, 1986. "Government Size and Economic Growth: A New Framework and Some Evidencefrom Cross-Section and Time-Series Data," American Economic Review, American Economic Association, vol. 76(1), pages 191-203, March.
  3. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
  4. Summers, Robert & Heston, Alan, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 327-68, May.
  5. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  6. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.
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Cited by:
  1. Wei-Bin Zhang, 2014. "National and International Inequalities in Income and Wealth in a Global Growth with Free Trade and National Inflation Policies," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences & Institute for World Economy of the Romanian Academy, vol. 2(1), pages 22-40, May.

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