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Optimal size of government and economic growth in EU-27

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  • Magazzino, Cosimo
  • Forte, Francesco

Abstract

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.

Suggested Citation

  • Magazzino, Cosimo & Forte, Francesco, 2010. "Optimal size of government and economic growth in EU-27," MPRA Paper 26669, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:26669
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    References listed on IDEAS

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    Cited by:

    1. Pelin Varol Iyidogan & Taner Turan, 2017. "Government Size and Economic Growth in Turkey: A Threshold Regression Analysis," Prague Economic Papers, University of Economics, Prague, vol. 2017(2), pages 142-154.
    2. Robert Pater & Tomasz Skica, 2014. "The productivity of public and private sector in Poland," Business and Economic Horizons (BEH), Prague Development Center, vol. 10(2), pages 120-137, July.
    3. International Monetary Fund, 2013. "Republic of Lithuania; Selected Issues," IMF Staff Country Reports 13/82, International Monetary Fund.
    4. Coll Sebastian, 2014. "Is There Too Much Government in Developed Countries? A Time-Series Analysis of 24 OECD-Economies," Journal of Heterodox Economics, De Gruyter Open, vol. 1(1), pages 1-30, June.
    5. Magazzino, Cosimo, 2011. "The nexus between public expenditure and inflation in the Mediterranean countries," MPRA Paper 28493, University Library of Munich, Germany.

    More about this item

    Keywords

    Government size; economic growth; BARS curve; public expenditure; EU-27.;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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