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Public expenditure and growth volatility: do "globalisation" and institutions matter?

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Author Info

  • Fabrizio Carmignani

    (United Nations Economic Commission for Africa¤)

  • Emilio Colombo

    () (Department of Economics, University of Milan-Bicocca)

  • Patrizio Tirelli

    () (Department of Economics, University of Milan-Bicocca)

Abstract

We revisit the empirical relationship between output volatility and government expenditure in a model where the two are jointly deter- mined. The key regressors in our model are trade and ¯nancial integra- tion indicators, institutional variables, including central bank indepen- dence, and a measure of de facto exchange rate °exibility. Our ¯ndings consistently signal that government discretion has destabilising e®ects on growth volatility. We con¯rm that government size increases with trade integration, but this has adverse e®ects because public spending is positively related to growth volatility. Institutions that increase policy- makers accountability limit the level of public expenditure and volatility. In this regard, our results support the view that stronger institutions increase policy efficiency.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper116.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 116.

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Length: 32 pages
Date of creation: 2007
Date of revision: 2007
Handle: RePEc:mib:wpaper:116

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Related research

Keywords: Output volatility; government expenditure; trade openness; financial openness; central bank independence; political institutions;

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  1. Chinn, Menzie David & Ito, Hiro, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Santa Cruz Department of Economics, Working Paper Series qt5pv1j341, Department of Economics, UC Santa Cruz.
  2. Atish R. Ghosh & Anne-Marie Gulde & Holger C. Wolf, 2003. "Exchange Rate Regimes: Choices and Consequences," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072408.
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