We use US county level data (3,058 observations) from 1970 to 1998 to explore the relationship between economic growth and the extent of government employment at three levels: federal, state and local. We find that increases in federal, state and local government employments are all negatively associated with economic growth. We find no evidence that government is more efficient at lower levels. While we cannot separate out the productive and redistributive services of government, we document that the county-level income distribution became slightly more unequal from 1970 to 1998. For those who justify government activities in terms of equity concerns – perhaps even trading off economic growth for equity – the burden falls on them to show that the income distribution would have widened more in the absence of government activities. We conclude that a release of government-employed labor inputs to the private sector would be growth-enhancing.
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Find related papers by JEL classification: E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy O18 - Economic Development, Technological Change, and Growth - - Economic Development - - - Regional, Urban, and Rural Analyses H50 - Public Economics - - National Government Expenditures and Related Policies - - - General O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth O51 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada R11 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Analysis of Growth, Development, and Changes
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Jordan Rappaport, 1999.
"Local Growth Empirics,"
CID Working Papers
23, Center for International Development at Harvard University.
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Lynde, Catherine & Richmond, J, 1993.
"Public Capital and Total Factor Productivity,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 401-14, May.
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