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Government size, composition of public expenditure, and economic development

This paper analyzes the effects of government size and of the composition of public expenditure on economic development. Using the system-GMM estimator for linear dynamic panel data models, on a sample covering up to 156 countries and 5-year periods from 1980 to 2010, we find that government size as a percentage of GDP has a quadratic (inverted U-shaped) effect on the growth rate of the Human Development Index (HDI). This effect is especially pronounced in developed and high income countries. We also find that the composition of public expenditure affects development, with the share of five subcomponents exhibiting non-linear relationships with HDI growth.

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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 17/2013.

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Date of creation: 2013
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Handle: RePEc:nip:nipewp:17/2013
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Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal

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Web page: http://www3.eeg.uminho.pt/economia/nipe/versao_inglesa/index_uk.htm
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  11. Afonso, António & Furceri, Davide, 2010. "Government size, composition, volatility and economic growth," European Journal of Political Economy, Elsevier, vol. 26(4), pages 517-532, December.
  12. Xavier Sala-i-Martin, 1995. "Transfers, social safety nets and economic growth," Economics Working Papers 139, Department of Economics and Business, Universitat Pompeu Fabra.
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  14. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
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  19. Heitger, Bernhard, 2001. "The Scope of Government and its Impact on Economic Growth in OECD Countries," Kiel Working Papers 1034, Kiel Institute for the World Economy (IfW).
  20. Giancarlo Corsetti & Nouriel Roubini, 1996. "Optimal Government Spending and Taxation in Endgenous Growth Models," NBER Working Papers 5851, National Bureau of Economic Research, Inc.
  21. 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 914-27, October.
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  23. Vito Tanzi & Howell H. Zee, 1997. "Fiscal Policy and Long-Run Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 179-209, June.
  24. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  25. Tanzi,Vito & Schuknecht,Ludger, 2000. "Public Spending in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521662918, june. pag.
  26. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
  27. Nafziger,E. Wayne, 2012. "Economic Development," Cambridge Books, Cambridge University Press, number 9780521765480, june. pag.
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