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Government Size and Output Volatility: New International Evidence

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  • Koskela, Erkki
  • Virén, Matti

Abstract

This paper re-examines the relationship between government size and output volatility from two perspectives. First, we use a wider international data set of 91 countries over the period 1980–1999 and thus not only the OECD data that have thus far been utilized. Second, we also allow for time series aspect by using panel data estimations. We have two new findings. First, the results from OECD countries about the negative relationship between output volatility and government size cannot be generalized to a wider international data set. Second, the relationship between government size and output volatility seems to be nonlinear. More precisely, the negative effect of government size on output volatility is significantly negative only for countries with high and small public sectors.

Suggested Citation

  • Koskela, Erkki & Virén, Matti, 2004. "Government Size and Output Volatility: New International Evidence," Discussion Papers 339, VATT Institute for Economic Research.
  • Handle: RePEc:fer:dpaper:339
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    File URL: https://www.doria.fi/handle/10024/148318
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    References listed on IDEAS

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    7. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    8. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    9. Olivier Jean Blanchard, 2000. "The automatic fiscal stabilizers: quietly doing their thing - commentary," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 69-74.
    10. Gali, Jordi, 1994. "Government size and macroeconomic stability," European Economic Review, Elsevier, vol. 38(1), pages 117-132, January.
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    12. Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291.
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