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The shifting Scully curve: international evidence from 1871 to 2016

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  • Livio Di Matteo
  • Fraser Summerfield

Abstract

Scully curves estimating growth-maximizing public-sector size are constructed using panel data covering 17 industrialized nations from 1870–2016. Results suggest that government expenditure-to-GDP ratios between 24% and 32% were historically growth maximizing. Instrumental variable estimates support the quadratic Scully curve relationship as causal over this period. We allow for a shifting Scully curve and find that the economic growth-maximizing size changed throughout history, from 11% pre-WWI to 21% post-WWII and 41% following the OPEC crisis. The Scully curve disappears after the mid-1990s suggesting a structural change in the relationship between central government expenditure and economic growth.

Suggested Citation

  • Livio Di Matteo & Fraser Summerfield, 2020. "The shifting Scully curve: international evidence from 1871 to 2016," Applied Economics, Taylor & Francis Journals, vol. 52(39), pages 4263-4283, August.
    • Handle: RePEc:taf:applec:v:52:y:2020:i:39:p:4263-4283
    DOI: 10.1080/00036846.2020.1733479
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