Economic performance and government size

Arbeitspapier

We construct a growth model with an explicit government role, where more government resources reduce the optimal level of private consumption and of output per worker. In the empirical analysis, for a panel of 108 countries from 1970-2008, we use different proxies for government size and institutional quality. Our results, consistent with the presented growth model, show a negative effect of the size of government on growth. Similarly, institutional quality has a positive impact on real growth, and government consumption is consistently detrimental to growth. Moreover, the negative effect of government size on growth is stronger the lower institutional quality, and the positive effect of institutional quality on growth increases with smaller governments. The negative effect on growth of the government size variables is more mitigated for Scandinavian legal origins, and stronger at lower levels of civil liberties and political rights. Finally, for the EU, better overall fiscal and expenditure rules improve growth.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1399

Classification and Topics

• Classification: Wirtschaft ; Econometric and Statistical Methods and Methodology: General ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Structure, Scope, and Performance of Government ; Fiscal Policies and Behavior of Economic Agents: General ; Economic Growth and Aggregate Productivity: General
• Subject: common correlated effects ; fiscal rules ; Growth ; institutions ; pooled mean group

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Afonso, António ; Jalles, João Tovar
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/153832
• Last update: 10.03.2025, 11:45 AM CET