On Explaining the Differences in Economic Growth Rates in OECD Countries
In this study, we examine the role played by fiscal policy in explaining the differences in economic growth rates of the nineteen OECD countries over the 1971-1999 period. We model the impact of government spending variables (which can be taken as indicators of the size of government) on economic growth via their impact on total factor productivity, and estimate the model using the random coefficients approach. Our results indicate that total factor productivity growth is impacted adversely by the size of government, when total government outlays (relative to GDP) are used to measure government size. On the other hand, if we measure government size in terms of the growth of government consumption, the impact is unambiguously positive. The difference is likely due to the fact that government transfers were the reason behind the sharp upward trend in fiscal deficits over this period, resulting in high taxation levels. In both cases, the evidence is not strong enough to suggest a monotonic relationship between the magnitude of this impact and government size.
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Volume (Year): 6 (2003)
Issue (Month): 2 (Winter)
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