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Expenditure Efficiency and the Optimal Size of Government in Developing Countries

Author

Listed:
  • Yogi Rahmayanti

    () (Osaka School of International Public Policy, Osaka University)

  • Theara Horn

    () (Graduate School of Economics, Osaka University)

Abstract

Government efficiency plays a significant role in the relationship between government expenditure and economic growth. Based on panel data from 63 developing countries 1990 to 2003, we calculate efficiency scores using Data Envelopment Analysis, incorporate them into a simple model of growth with government expenditure. We find that there is a critical level of efficiency required for government expenditure to have positive effect on growth. Further, above a critical level of efficiency, greater efficiency lowers the optimal size of government expenditure required to maximize growth.

Suggested Citation

  • Yogi Rahmayanti & Theara Horn, 2010. "Expenditure Efficiency and the Optimal Size of Government in Developing Countries," Discussion Papers in Economics and Business 10-20, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  • Handle: RePEc:osk:wpaper:1020
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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1020.pdf
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    References listed on IDEAS

    as
    1. Folster, Stefan & Henrekson, Magnus, 2001. "Growth effects of government expenditure and taxation in rich countries," European Economic Review, Elsevier, vol. 45(8), pages 1501-1520, August.
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    More about this item

    Keywords

    Fiscal Policy; Government Expenditure; Public Sector Efficiency; Growth;

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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