Exploring Cross-Country Variation in Government Shares: What Can We Learn from Relative Productivities?
Government shares in total output are characterized by significant variation across countries. As a starting point of my study, I notice strong negative correlation between government consumption share and price of government services in terms of private consumption. Motivated by this empirical observation, I develop a neoclassical growth model with added government that is capable of matching the variation in government shares very closely using only relative prices. In addition, I provide empirical evidence showing that the relative price of government consumption increases in income which is consistent with distortions prevailing in poor countries. These two observations combined imply that government shares tend to be higher in poorer countries.
|Date of creation:||Jun 2010|
|Note:||Submitted to Macroeconomic Dynamics|
|Contact details of provider:|| Postal: Str. Dmytrivska, 92-94, 4th Floor, office 404, Kyiv, 01135|
Web page: http://www.kse.org.ua/
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- Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.
- Chang-Tai Hsieh & Peter J. Klenow, 2007.
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American Economic Association, vol. 97(3), pages 562-585, June.
- Chang-Tai Hsieh & Peter J. Klenow, 2003. "Relative prices and relative prosperity," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
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- Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
- Robert Summers & Alan Heston, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950–1988," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 327-368.
- Ram, Rati, 1986. "Government Size and Economic Growth: A New Framework and Some Evidencefrom Cross-Section and Time-Series Data," American Economic Review, American Economic Association, vol. 76(1), pages 191-203, March.
- Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753, October. Full references (including those not matched with items on IDEAS)
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