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Government size, composition, volatility and economic growth

  • Afonso, António
  • Furceri, Davide

This paper analyses the effects in terms of size and volatility of government revenue and spending on growth in OECD and EU countries. The results of the paper suggest that both variables are detrimental to growth. In particular, looking more closely at the effect of each component of government revenue and spending, the results point out that i) indirect taxes (size and volatility); ii) social contributions (size and volatility); iii) government consumption (size and volatility); iv) subsidies (size); and v) government investment (volatility) have a sizeable, negative and statistically significant effect on growth. JEL Classification: E62, H50, O40

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Paper provided by European Central Bank in its series Working Paper Series with number 0849.

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Date of creation: Jan 2008
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Handle: RePEc:ecb:ecbwps:20080849
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