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Growth Effects of Government Expenditure and Taxation in Rich Countries

  • Fölster, Stefan

    (HUI)

  • Henrekson, Magnus

    ()

    (The Research Institute of Industrial Economics)

A number of cross-country comparisons do not find a robust negative relationship between government size and economic growth. In part this may reflect the prediction in economic theory that a negative relationship should exist primarily for rich countries with large public sectors. In this paper an econometric panel study is conducted on a sample of rich countries covering the 1970-95 period. Extended extreme bounds analyses are reported based on a regression model that tackles a number of econometric issues. Our general finding is that the more econometric problems are addressed, the more robust the relationship between government size and economic growth appears. Our most complete specifications are robust even according to the stringent extreme bounds criterion.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 503.

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Length: 22 pages
Date of creation: 22 Sep 1998
Date of revision: 20 Jun 2000
Publication status: Published in European Economic Review, 2001, pages 1501-1520.
Handle: RePEc:hhs:iuiwop:0503
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
Web page: http://www.ifn.se/
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  9. Leamer, Edward E, 1983. "Let's Take the Con Out of Econometrics," American Economic Review, American Economic Association, vol. 73(1), pages 31-43, March.
  10. Fölster, Stefan & Henrekson, Magnus, 1997. "Growth and the Public Sector: A Critique of the Critics," Working Paper Series 492, Research Institute of Industrial Economics, revised 10 Jun 1998.
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