Exploring Cross-Country Variation in Government Shares: What Can We Learn from Relative Productivities?
AbstractGovernment 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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Bibliographic InfoPaper provided by Kyiv School of Economics in its series Discussion Papers with number 25.
Date of creation: Jun 2010
Date of revision:
Note: Submitted to Macroeconomic Dynamics
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More information through EDIRC
Government consumption; Relative government shares; Relative international prices; Neoclassical growth model; the Penn World Table;
Other versions of this item:
- Obrizan, Maksym, 2013. "Exploring Cross-Country Variation In Government Shares: What Can We Learn From Relative Productivities?," Macroeconomic Dynamics, Cambridge University Press, vol. 17(02), pages 356-372, March.
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- H40 - Public Economics - - Publicly Provided Goods - - - General
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
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- 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.
- Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.
- Chang-Tai Hsieh & Peter J. Klenow, 2003.
"Relative prices and relative prosperity,"
Federal Reserve Bank of San Francisco, issue Nov.
- 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.
- 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.
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