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The causes of government and the consequences for growth and well-being

  • Commander, Simon
  • Davoodi, Hamid R.
  • Lee, Une J.
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    Using a large cross-country data set, the authors examine the factors that cause governments to grow, and analyze how the size of government affects growth, whether measured as income growth or other measures of well-being, such as infant mortality and life expectancy. They find no robust link between government size and per capita income. The factors they find to be important in explaining government size are relative prices, the age-dependency ratio, how long a country has been independent, relative political freedom, and openness in trade. Their results also partially support the view that governments use consumption to buffer external risk, especially in low-income countries. As for how government size affects growth, they find a robust and significant negative relationship between growth and government size, as measured by consumption. Policy distortions, predictably, also have a negative effect on growth. But the positive effects of well-functioning institutions and high quality in government bureaucracies can offset the negative influence of large government size alone. Finally, they find that social-sector spending can exert a positive influence by reducing infant mortality and raising life expectancy. Better income distribution, higher per capita income, higher per capita income growth, and more political freedom have the same positive effect on those two measures of well-being.

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    File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1999/09/17/000178830_98101904053984/Rendered/PDF/multi_page.pdf
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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1785.

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    Date of creation: 30 Jun 1997
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    Handle: RePEc:wbk:wbrwps:1785
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    1. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
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    5. Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
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    16. 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.
    17. Tavares, Jose & Wacziarg, Romain, 2001. "How democracy affects growth," European Economic Review, Elsevier, vol. 45(8), pages 1341-1378, August.
    18. Pritchett, Lant, 1996. "Mind your P's and Q's : the cost of public investment is not the value of public capital," Policy Research Working Paper Series 1660, The World Bank.
    19. Ludger Schuknecht & Vito Tanzi, 1995. "The Growth of Government and the Reform of the State in Industrial Countries," IMF Working Papers 95/130, International Monetary Fund.
    20. Lindauer, David L., 1988. "The size and growth of government spending," Policy Research Working Paper Series 44, The World Bank.
    21. William Easterly & Michael Kremer & Lant Pritchett & Lawrence H. Summers, 1993. "Good Policy or Good Luck? Country Growth Performance and Temporary Shocks," NBER Working Papers 4474, National Bureau of Economic Research, Inc.
    22. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
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    24. Sudhir Anand & Martin Ravallion, 1993. "Human Development in Poor Countries: On the Role of Private Incomes and Public Services," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 133-150, Winter.
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