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The Effect of Federal Government Size on Long-Term Economic Growth in the United States, 1792-2004

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Author Info
Federico Guerrero () (Department of Economics, University of Nevada, Reno)
Elliott Parker () (Department of Economics, University of Nevada, Reno)

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Abstract

In this paper, we consider whether there is statistical evidence for a causal relationship between federal government expenditures and growth in real per-capita GDP in the United States, using available data going back to 1792. After studying the time-series properties of these variables for stationarity and cointegration, we investigate Granger causality in detail in the context of a Vector Error Correction Model. While we find causal evidence supporting Wagner’s Law, we find no evidence supporting the common assertion that a larger government sector leads to slower economic growth.

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File URL: http://www.business.unr.edu/econ/wp/papers/UNRECONWP07002.pdf
File Format: application/pdf
File Function: First version, 2007
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Publisher Info
Paper provided by University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics in its series Working Papers with number 07-002.

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Length: 34 pages
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:unr:wpaper:07-002

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Related research
Keywords: long-term economic growth; federal government size; Wagner’s Law; United States; cointegration; Granger causality; vector autoregression; vector error correction model;

Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
F39 - International Economics - - International Finance - - - Other

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  1. Joel Slemrod, 1995. "Involvement, Prosperity, and Economic Growth?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-2), pages 373-431. [Downloadable!]
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  7. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October. [Downloadable!] (restricted)
    Other versions:
  8. Jones, Jonathan D. & Joulfaian, David, 1991. "Federal govemment expenditures and revenues in the early years of the American republic: Evidence from 1792 to 1860," Journal of Macroeconomics, Elsevier, vol. 13(1), pages 133-155. [Downloadable!] (restricted)
  9. Islam, Anisul M, 2001. "Wagner's Law Revisited: Cointegration and Exogeneity Tests for the USA," Applied Economics Letters, Taylor and Francis Journals, vol. 8(8), pages 509-15, August. [Downloadable!] (restricted)
  10. Zellner, A., 1988. "Causality And Causal Laws In Economics," Papers m8801, Southern California - Department of Economics.
    Other versions:
  11. Thomas A. Garrett & Russell M. Rhine, 2006. "On the size and growth of government," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 13-30. [Downloadable!]
  12. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211. [Downloadable!] (restricted)
  13. Gilbert, Christopher L, 1986. "Professor Hendry's Econometric Methodology," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 283-307, August.
  14. Jacques Poot, 2000. "A Synthesis of Empirical Research on the Impact of Government onLong-Run Growth," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 31(4), pages 516-546. [Downloadable!] (restricted)
  15. Hendry, David F, 1986. "Using PC-GIVE in Econometrics Teaching," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(1), pages 87-98, February.
  16. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July. [Downloadable!] (restricted)
  17. Conte, Michael A & Darrat, Ali F, 1988. "Economic Growth and the Expanding Public Sector: A Reexamination," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 322-30, May. [Downloadable!] (restricted)
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