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Government Size and Unemployment: Evidence from Industrial Countries

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  • Horst Feldmann

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Abstract

Using data from 19 industrial countries for the period 1985 to 2002, this paper analyzes how the size of the government sector affects unemployment. Controlling for the impact of the business cycle as well as for the impact of all major labor market institutions and unobserved country effects, we find that a large government sector is likely to increase unemployment. It appears to have a particularly detrimental effect on women and the low skilled and to substantially increase long-term unemployment. It seems that dominant stateowned enterprises, a large share of public investment in total investment as well as high top marginal income tax rates and low income threshold levels at which they apply are particularly detrimental. Copyright Springer Science+Business Media, Inc. 2006

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File URL: http://hdl.handle.net/10.1007/s11127-005-9003-y
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Article provided by Springer in its journal Public Choice.

Volume (Year): 127 (2006)
Issue (Month): 3 (June)
Pages: 443-459

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Handle: RePEc:kap:pubcho:v:127:y:2006:i:3:p:443-459
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100332

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  1. Bertola, Giuseppe & Drazen, Allan, 1991. "Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity," CEPR Discussion Papers 599, C.E.P.R. Discussion Papers.
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  4. Alesina, Alberto & Perotti, Roberto, 1997. "The Welfare State and Competitiveness," American Economic Review, American Economic Association, vol. 87(5), pages 921-39, December.
  5. Horst Feldmann, 2003. "Labor Market Regulation and Labor Market Performance: Evidence Based on Surveys among Senior Business Executives," Kyklos, Wiley Blackwell, vol. 56(4), pages 509-540, November.
  6. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1339-1382.
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  8. Horst Feldmann, 2005. "Labour Market Institutions and Labour Market Performance in Transition Countries," Post-Communist Economies, Taylor & Francis Journals, vol. 17(1), pages 47-82.
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  12. Abrams, Burton A, 1999. "The Effect of Government Size on the Unemployment Rate," Public Choice, Springer, vol. 99(3-4), pages 395-401, June.
  13. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
  14. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
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  16. Roberto Perotti, 1999. "Fiscal Policy in Good Times and Bad," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1399-1436.
  17. Bjørn Volkerink & Jan-Egbert Sturm & Jakob de Haan, 2002. "Tax Ratios in Macroeconomics: Do Taxes Really Matter?," Empirica, Springer, vol. 29(3), pages 209-224, September.
  18. Dimitris Christopoulos & Efthymios Tsionas, 2002. "Unemployment and government size: Is there any credible causality?," Applied Economics Letters, Taylor & Francis Journals, vol. 9(12), pages 797-800.
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Cited by:

  1. Feldmann, Horst, 2009. "The unemployment effects of labor regulation around the world," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 76-90, March.
  2. Johan Graafland & Bart Compen, 2015. "Economic Freedom and Life Satisfaction: Mediation by Income per Capita and Generalized Trust," Journal of Happiness Studies, Springer, vol. 16(3), pages 789-810, June.
  3. Graafland, J.J. & Compen, B., 2012. "Economic Freedom and Life Satisfaction : A Cross Country Analysis," Discussion Paper 2012-038, Tilburg University, Center for Economic Research.
  4. Siyan Wang & Burton A. Abrams, 2011. "The Effect of Government Size on the Steady-State Unemployment Rate: A Dynamic Perspective," Working Papers 11-12, University of Delaware, Department of Economics.
  5. Alberto Behar & Junghwan Mok, 2013. "Does Public-Sector Employment Fully Crowd Out Private-Sector Employment?," Economics Series Working Papers WPS/2013-20, University of Oxford, Department of Economics.
  6. Davide Furceri, 2012. "Unemployment and Labor Market Issues in Algeria," IMF Working Papers 12/99, International Monetary Fund.
  7. Siyan Wang & Burton A. Abrams, 2011. "Government Outlays, Economic Growth and Unemployment: A VAR Model," Working Papers 11-13, University of Delaware, Department of Economics.
  8. Burton A. Abrams & Siyan Wang, 2007. "The Effect of Government Size on the Steady-State Unemployment Rate: An Error Correction Model," Working Papers 07-14, University of Delaware, Department of Economics.
  9. Can, Raif, 2015. "The Impact of Employment Protection Legislation on the Unemployment Rate in Selected OECD Countries," MPRA Paper 63329, University Library of Munich, Germany.
  10. Burton A. Abrams & Siyan Wang, 2006. "The Effect of Government Size on the Steady-State Unemployment Rate: A Structural Error Correction Model," Working Papers 06-05, University of Delaware, Department of Economics.
  11. Feldmann, Horst, 2009. "The Quality of the Legal System and Labor Market Performance around the World," Department of Economics Working Papers 15966, University of Bath, Department of Economics.
  12. Horst Feldmann, 2008. "Business regulation and labor market performance around the world," Journal of Regulatory Economics, Springer, vol. 33(2), pages 201-235, April.
  13. Olfa Alouini, 2009. "Country size, economic performance and the political economy of the euro zone : an empirical study of the size divide," Documents de Travail de l'OFCE 2007-01, Observatoire Francais des Conjonctures Economiques (OFCE).
  14. Horst Feldmann, 2012. "Product Market Regulation and Labor Market Performance around the World," LABOUR, CEIS, vol. 26(3), pages 369-391, 09.
  15. Mahalia Jackman, 2014. "A Note on the Labor Market Effects of Remittances in Latin American and Caribbean Countries: Do Thresholds Exist?," The Developing Economies, Institute of Developing Economies, vol. 52(1), pages 52-67, 03.
  16. Lorenzo E Bernal-Verdugo & Davide Furceri & Dominique Guillaume, 2012. "Labor Market Flexibility and Unemployment: New Empirical Evidence of Static and Dynamic Effects," Comparative Economic Studies, Palgrave Macmillan, vol. 54(2), pages 251-273, June.
  17. Davide Furceri & Ernesto Crivelli & Joël Toujas-Bernate, 2012. "Can Policies Affect Employment Intensity of Growth? A Cross-Country Analysis," IMF Working Papers 12/218, International Monetary Fund.
  18. International Monetary Fund., 2014. "Philippines; Selected Issues," IMF Staff Country Reports 14/246, International Monetary Fund.

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