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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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    Cited by:

    1. Adam Elbourne & Debby Lanser & Bert Smid & Martin Vromans, 2008. "Macroeconomic resilience in a DSGE model," CPB Discussion Paper 96.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Carmignani, Fabrizio & Colombo, Emilio & Tirelli, Patrizio, 2011. "Macroeconomic risk and the (de)stabilising role of government size," European Journal of Political Economy, Elsevier, vol. 27(4), pages 781-790.
    3. Kashif Munir & Nimra Riaz, 2019. "Fiscal Policy and Macroecomonic Stability in South Asian Countries," Hacienda Pública Española / Review of Public Economics, IEF, vol. 228(1), pages 13-33, March.
    4. Staehr, Karsten, 2008. "Fiscal policies and business cycles in an enlarged euro area," Economic Systems, Elsevier, vol. 32(1), pages 46-69, March.
    5. Adam Elbourne & Debby Lanser & Bert Smid & Martin Vromans, 2008. "Macroeconomic resilience in a DSGE model," CPB Discussion Paper 96, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Virén, Matti, 2005. "Government size and output volatility : is there a relationship?," Research Discussion Papers 8/2005, Bank of Finland.
    7. Virén, Matti, 2005. "Government size and output volatility: is there a relationship?," Bank of Finland Research Discussion Papers 8/2005, Bank of Finland.
    8. Hjerppe, Reino, 2003. "Uncovering the Dimensions of the Common Good - Problems of Measurement of the Size of the Public Sector," Discussion Papers 322, VATT Institute for Economic Research.
    9. Matti Virén, 2005. "Government size and output volatility: is there a relationship?," Macroeconomics 0508025, University Library of Munich, Germany.
    10. Klomp, Jeroen & de Haan, Jakob, 2009. "Political institutions and economic volatility," European Journal of Political Economy, Elsevier, vol. 25(3), pages 311-326, September.

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