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Government spending volatility and the size of nations

  • Furceri, Davide
  • Poplawski Ribeiro, Marcos

This paper provides empirical evidence showing that smaller countries tend to have more volatile government spending for a sample of 160 countries from 1960 to 2000. We argue that the larger size of a country decreases the volatility of government spending because it acts as an insurance against idiosyncratic shocks, and it leads to increasing returns to scale due to the higher ability of the government to spread its cost of financing over a larger pool of taxpayers. The results are robust to different time and country samples, different econometric techniques and to several sets of control variables. The analysis also evinces that country size is negatively related to the discretionary part of government spending and to the volatilities of most of the government spending items. JEL Classification: E62, H10

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Paper provided by European Central Bank in its series Working Paper Series with number 0924.

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Date of creation: Aug 2008
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Handle: RePEc:ecb:ecbwps:20080924
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  9. Furceri, Davide & Karras, Georgios, 2007. "Country size and business cycle volatility: Scale really matters," Journal of the Japanese and International Economies, Elsevier, vol. 21(4), pages 424-434, December.
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  14. Poplawski Ribeiro, Marcos & Beetsma, Roel, 2008. "The political economy of structural reforms under a deficit restriction," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 179-198, March.
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  16. repec:ebl:ecbull:v:5:y:2008:i:3:p:1-7 is not listed on IDEAS
  17. Norman V. Loayza & Romain Rancière & Luis Servén & Jaume Ventura, 2007. "Macroeconomic Volatility and Welfare in Developing Countries: An Introduction," World Bank Economic Review, World Bank Group, vol. 21(3), pages 343-357, October.
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  24. Davide Furceri & Georgios Karras, 2008. "Business cycle volatility and country zize :evidence for a sample of OECD countries," Economics Bulletin, AccessEcon, vol. 5(3), pages 1-7.
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