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The Size of Government and U.S.-European Differences in Economic Performance

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  • Gerwin Bell
  • Norikazu Tawara

Abstract

An influential strand of recent research has claimed that large governments in European countries explain their weaker long-term economic performance compared to the U.S. On the other hand, despite these alleged costs, large governments have been popular with electorates. This paper seeks to shed light on this apparent inconsistency; it confirms an adverse effect of taxes on labor supply, but also finds evidence of efficiency-increasing government intervention. However, and especially in the core "Rhineland-model" European countries, actual government policies often depart from such efficient interventions, pointing to the possibility that voters prefer redistribution even at the cost of allocational efficiency.

Suggested Citation

  • Gerwin Bell & Norikazu Tawara, 2009. "The Size of Government and U.S.-European Differences in Economic Performance," IMF Working Papers 09/92, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:09/92
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    References listed on IDEAS

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    1. Richard Disney, 2004. "Are contributions to public pension programmes a tax on employment?," Economic Policy, CEPR;CES;MSH, vol. 19(39), pages 267-311, July.
    2. Hall, Robert E, 1997. "Macroeconomic Fluctuations and the Allocation of Time," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 223-250, January.
    3. Kennan, John, 1988. "An Econometric Analysis of Fluctuations in Aggregate Labor Supply and Demand," Econometrica, Econometric Society, vol. 56(2), pages 317-333, March.
    4. Lei Fang & Richard Rogerson, 2011. "Product Market Regulation and Market Work: A Benchmark Analysis," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 163-188, April.
    5. Casey B. Mulligan, 1998. "Pecuniary Incentives to Work in the United States during World War II," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 1033-1077, October.
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