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Growth Effects of Fiscal Policies: A Critical Appraisal of Colombier’s (2009) Study

  • Bergh, Andreas

    ()

    (Research Institute of Industrial Economics (IFN))

  • Öhrn, Nina

    ()

    (Stockholm University)

In a recent paper, Colombier (2009) uses a robust estimation technique and claims to find empirical evidence that government size has not been detrimental to growth for OECD countries during the 1970 to 2001 period, and that endogenous growth theory is not corroborated. We examine the robustness of these findings, and show that Colombier’s results differ from those in other recent papers not because of the estimator used, but because of the exclusion of other control variables. Adding time fixed effects to Colombier’s data set, and using the same econometric method, we obtain results in line with other findings, corroborating endogenous growth theory. Adding further control variables illustrates the robustness of the negative correlation between total tax revenue and economic growth for both instrumented and non-instrumented regressions.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 864.

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Length: 12 pages
Date of creation: 03 Mar 2011
Date of revision:
Handle: RePEc:hhs:iuiwop:0864
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  1. Fölster, Stefan & Henrekson, Magnus, 1998. "Growth Effects of Government Expenditure and Taxation in Rich Countries," Working Paper Series 503, Research Institute of Industrial Economics, revised 20 Jun 2000.
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