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Exogenous Volatility and the Size of Government in Developing Countries

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  • Gradstein, Mark
  • Brückner, Markus

Abstract

This paper presents instrumental variables estimates of the effects of GDP per capita volatility on the size of government. We show that for a panel of 157 countries spanning more than half a century rainfall volatility has a significant positive effect on GDP per capita volatility in countries with above median temperatures. In these countries rainfall volatility has also a significant positive reduced-form effect on the GDP share of government. There is no significant reduced-form effect in the sample of countries with below median temperatures where rainfall volatility has no significant effect on GDP per capita volatility. Using rainfall volatility as an instrumental variable in the sample of countries with above median temperatures yields that greater GDP per capita volatility leads to a significantly higher GDP share of government.

Suggested Citation

  • Gradstein, Mark & Brückner, Markus, 2013. "Exogenous Volatility and the Size of Government in Developing Countries," CEPR Discussion Papers 9657, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9657
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    2. Xiang Luo & Xinhai Lu & Zuo Zhang & Yue Pan, 2020. "Regional differences and rural public expenditure cyclicality: evidence from transitory and persistent shocks in China," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 65(2), pages 281-318, October.
    3. Claudio Deiana & Ludovica Giua & Roberto Nisticò, 2024. "Opium Price Shocks and Prescription Opioids in the USA," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 86(3), pages 449-484, June.
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    5. Lyu, Bingyang & Ma, Guangrong & Zhan, Jingnan, 2022. "The trade-off between risk and incentives in fiscal federalism: Evidence from China," Journal of Comparative Economics, Elsevier, vol. 50(4), pages 1019-1035.
    6. Sperduto Luke, 2019. "Can Human Development Bonds Reduce the Agency Costs of the Resource Curse?," The Law and Development Review, De Gruyter, vol. 12(1), pages 191-245, January.
    7. Sáenz Pinzón, María Camila, 2024. "Instrumentos financieros y bienestar de los hogares rurales colombianos ante choques climáticos," Documentos CEDE 21191, Universidad de los Andes, Facultad de Economía, CEDE.

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    More about this item

    Keywords

    Volatility; Government size;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H1 - Public Economics - - Structure and Scope of Government
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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