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The net foreign asset position and government size

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  • Erauskin, Iñaki

Abstract

This paper analyzes the relationship between the net foreign asset position of a country, and government size and consumption–wealth ratio in a stochastically growing small open economy. The model suggests that more indebted countries are associated with bigger governments when utility-enhancing government spending is also volatility-reducing. More indebted countries would have a higher volatility originating from domestic sources, thus encouraging government to increase its size. Consumption–wealth ratio would also be higher for more indebted countries. The empirical evidence based on a sample of 49 countries for the period 1970–2009 broadly supports the main results of the model across many different specifications.

Suggested Citation

  • Erauskin, Iñaki, 2015. "The net foreign asset position and government size," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 130-148.
    • Handle: RePEc:eee:reveco:v:35:y:2015:i:c:p:130-148
    DOI: 10.1016/j.iref.2014.09.010
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    2. Iñaki Erauskin & Stephen J. Turnovsky, 2019. "Financial Globalization and the Increase in the Size of Government: Are They Related?," Open Economies Review, Springer, vol. 30(2), pages 219-253, April.

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    More about this item

    Keywords

    Net foreign asset position; Government size; Consumption–wealth ratio;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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