Optimal size of government and economic growth in EU-27
Using time-series techniques and panels data, the paper analyses for the EU countries in the period 1970-2009 the existence and shape of the “BARS curve” (Barro, Armey, Rahn, and Scully), connecting the size of Government (measured by the share of public expenditure on GDP) to the rate of economic growth. Individual countries research has been conducted for 12 countries for whom enough time series were available, while panel analysis has been performed both for EU-27 and for subgroups, distinguished by their different socio-economic and monetary structures, and per capita GDP. BARS curves were generally found, and the shares of actual public expenditures generally exceed substantially those related to the maximization of GDP growth. However, great differences do emerge. For the 12 countries examined by time-series techniques, the difference between the actual level and the peak of the BARS curve ranges from 5.7 points for Germany and 18.1 points for Belgium. Panel data analysis for EU-27 shows a peak of the BARS curve at 37%, while the actual level is about 47%. While, panel data disaggregation shows a similar situation for the Western Continental Countries, with a smaller gap for Anglo-Saxon countries. For low per capita GDP countries the peak is higher than for the mature economies. So, further research may prove useful to show light on the disparities emerging in the empirical analysis of individual countries and of the panel sub-groups. However, the present research provides enough evidence that high GDP countries of EU have overcome the level of government size compatible with GDP growth rate maximization.
|Date of creation:||01 Sep 2010|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barro, R.J., 1988.
"Government Spending In A Simple Model Of Endogenous Growth,"
RCER Working Papers
130, University of Rochester - Center for Economic Research (RCER).
- Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
- Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
- Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
- Hondroyiannis, George & Papapetrou, Evangelia, 1995. "An Examination of Wagner's Law for Greece: A Cointegration Analysis," Public Finance = Finances publiques, , vol. 50(1), pages 67-79.
- Edgar Peden & Michael Bradley, 1989. "Government size, productivity, and economic growth: The post-war experience," Public Choice, Springer, vol. 61(3), pages 229-245, June.
- Robert J. Barro, 1991.
"A Cross-Country Study of Growth, Saving, and Government,"
in: National Saving and Economic Performance, pages 271-304
National Bureau of Economic Research, Inc.
- Robert J. Barro, 1989. "A Cross-Country Study of Growth, Saving, and Government," NBER Working Papers 2855, National Bureau of Economic Research, Inc.
- Tanzi, Vito & Schuknecht, Ludger, 1997. "Reforming government: An overview of recent experience," European Journal of Political Economy, Elsevier, vol. 13(3), pages 395-417, September.
- Fölster, Stefan & Henrekson, Magnus, 2000.
"Growth Effects of Government Expenditure and Taxation in Rich Countries,"
SSE/EFI Working Paper Series in Economics and Finance
391, Stockholm School of Economics.
- 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.
- 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.
- Basil Dalamagas, 2000. "Public sector and economic growth: the Greek experience," Applied Economics, Taylor & Francis Journals, vol. 32(3), pages 277-288.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2010.
"Growth in a Time of Debt,"
NBER Working Papers
15639, National Bureau of Economic Research, Inc.
- 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).
- António Afonso & Ludger Schuknecht & Vito Tanzi, 2005.
"Public sector efficiency: An international comparison,"
Springer, vol. 123(3), pages 321-347, June.
- Afonso, António & Schuknecht, Ludger & Tanzi, Vito, 2003. "Public sector efficiency: an international comparison," Working Paper Series 0242, European Central Bank.
- Zsolt Becsi, 1996. "Do state and local taxes affect relative state growth?," Economic Review, Federal Reserve Bank of Atlanta, issue Mar, pages 18-36.
- Guseh, James S., 1997. "Government Size and Economic Growth in Developing Countries: A Political-Economy Framework," Journal of Macroeconomics, Elsevier, vol. 19(1), pages 175-192, January.
- Anaman, Kwabena A., 2004. "Determinants of economic growth in Brunei Darussalam," Journal of Asian Economics, Elsevier, vol. 15(4), pages 777-796, August.
- Alberto F. Alesina & Silvia Ardagna, 2009.
"Large Changes in Fiscal Policy: Taxes Versus Spending,"
NBER Working Papers
15438, National Bureau of Economic Research, Inc.
- Alberto Alesina & Silvia Ardagna, 2010. "Large Changes in Fiscal Policy: Taxes versus Spending," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 35-68 National Bureau of Economic Research, Inc.
- Benson, Bruce L & Johnson, Ronald N, 1986. "The Lagged Impact of State and Local Taxes on Economic Activity and Political Behavior," Economic Inquiry, Western Economic Association International, vol. 24(3), pages 389-401, July.
- Philip J. Grossman, 1987.
"The Optimal Size of Government,"
Monash Economics Working Papers
archive-06, Monash University, Department of Economics.
- Rostow,W. W., 1971. "Politics and the Stages of Growth," Cambridge Books, Cambridge University Press, number 9780521096539, October.
- Davies, Antony, 2009. "Human development and the optimal size of government," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(2), pages 326-330, March.
- Bajo-Rubio, Oscar, 2000. "A further generalization of the Solow growth model: the role of the public sector," Economics Letters, Elsevier, vol. 68(1), pages 79-84, July.
- Kent Osband & Caroline Van Rijckeghem, 2000. "Safety from Currency Crashes," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 4.
- Thomas A. Garrett & Russell M. Rhine, 2006. "On the size and growth of government," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 13-30.
- Tanzi, Vito & Schuknecht, Ludger, 1997. "Reconsidering the Fiscal Role of Government: The International Perspective," American Economic Review, American Economic Association, vol. 87(2), pages 164-68, May.
- Abdullah Yavas, 1998. "Does too much government investment retard economic development of a country?," Journal of Economic Studies, Emerald Group Publishing, vol. 25(4), pages 296-308, September.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:26669. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.