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Government size, productivity, and economic growth: The post-war experience

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  • Edgar Peden
  • Michael Bradley

Abstract

A substantial portion of the slowdown in productivity and economic growth in the seventies and eighties cannot be ascribed to traditional factors. We have found one potential additional source: the dramatic growth in the scale of government. Employing a theoretical model of output growth, we derive an equation which controls for cyclical influences and which permits distinguishing the effects of government growth on the economic base from the effects on the economic growth rate. We find that increases in the scale of government lead to statistically significant reductions in both the economic base and the economic growth rate. In addition, we find that most of this government-induced retardation of economic activity arises from reductions in productivity rather that reductions in the employment of factors. Copyright Kluwer Academic Publishers 1989

Suggested Citation

  • Edgar Peden & Michael Bradley, 1989. "Government size, productivity, and economic growth: The post-war experience," Public Choice, Springer, vol. 61(3), pages 229-245, June.
    • Handle: RePEc:kap:pubcho:v:61:y:1989:i:3:p:229-245
    DOI: 10.1007/BF00123886
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    3. Schneider Friedrich, 1992. "The Federal And Fiscal Structures Of Representative And Direct Democracies As Models For A European Federal Union: Some Ideas Using The Public-Choice Approach," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 3(4), pages 403-438, December.
    4. François Facchini & Mickaël Melki, 2011. "Optimal Government Size and Economic Growth in France (1871-2008): An explanation by the State and Market Failures," Documents de travail du Centre d'Economie de la Sorbonne 11077, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    5. Ivan D. Trofimov, 2017. "Capital Productivity In Industrialised Economies: Evidence From Error-Correction Model And Lagrange Multiplier Tests," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 62(215), pages 53-80, October –.
    6. F. Forte, 1997. "The measurement of 'fiscal burden' on GDP instead than on national net value added produced: a chapter in fiscal illusion," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 50(202), pages 337-375.
    7. Schneider, Friedrich G., 2009. "Is a Federal European Constitution for an enlarged European Union necessary? Some preliminary suggestions using public choice analysis," University of Göttingen Working Papers in Economics 83, University of Goettingen, Department of Economics.
    8. Mohammed Shuaibu & Suleiman O. Mamman, 2025. "Trade Facilitation and Economic Growth in ECOWAS Member States: Does Government Size Matter?," Journal of Industry, Competition and Trade, Springer, vol. 25(1), pages 1-24, December.
    9. Yamamura, Eiji, 2011. "Decomposition of the effect of government size on growth," Economics Letters, Elsevier, vol. 112(3), pages 230-232, September.
    10. Pater, Robert & Skica, Tomasz, 2014. "The productivity of public and private sector in Poland," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 10(2), pages 1-18.
    11. Facchini, François & Melki, Mickaël, 2013. "Efficient government size: France in the 20th century," European Journal of Political Economy, Elsevier, vol. 31(C), pages 1-14.
    12. Friedrich Schneider, 2023. "Is a Minimal Federal European Constitution for the European Union Necessary? Some Preliminary Suggestions Using Public Choice Analysis," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 40(1), pages 61-78, December.
    13. Federica Calidoni, 2004. "Aggregate and Disaggregate Analysis of the Effects of Government Expenditure on Growth," Dundee Discussion Papers in Economics 160, Economic Studies, University of Dundee.
    14. Konstantinos Angelopoulos & Apostolis Philippopoulos, 2007. "The growth effects of fiscal policy in Greece 1960–2000," Public Choice, Springer, vol. 131(1), pages 157-175, April.
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    16. Jorge Martinez-Vazquez & Violeta Vulovic & Yongzheng Liu, 2011. "Direct versus Indirect Taxation: Trends, Theory, and Economic Significance," Chapters, in: Emilio Albi & Jorge Martinez-Vazquez (ed.), The Elgar Guide to Tax Systems, chapter 2, Edward Elgar Publishing.
    17. Patrick Minford & David Meenagh & Jiang Wang, 2006. "Testing a Simple Structural Model of Endogenous Growth," CDMA Conference Paper Series 0606, Centre for Dynamic Macroeconomic Analysis.
    18. Minford, Patrick & Wang, Jiang & Meenagh, David, 2007. "Growth and relative living standards - testing Barriers to Riches on post-war panel data," CEPR Discussion Papers 6288, Centre for Economic Policy Research.
    19. Garey Durden & Barry Elledge, 1993. "The Effect Of Government Size On Economic Growth: Evidence From Gross State Product Data," The Review of Regional Studies, Southern Regional Science Association, vol. 23(2), pages 183-190, Fall.
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    21. Magazzino, Cosimo & Forte, Francesco, 2010. "Optimal size of government and economic growth in EU-27," MPRA Paper 26669, University Library of Munich, Germany.

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