Growth and the Public Sector: a Reply

J. Agell, Thomas Lindh () and Henry Ohlsson ()

Working Papers from Uppsala - Working Paper Series

Abstract: Fvlster and Henrekson (1998) claim that they, by addressing a number of econometric problems, can establish that it is likely that economies with a large public sector grow more slowly than economies with a small public sector. But their regressions are fundamentally flawed. Re-estimating their growth equation using theoretically valid instruments, we find that the growth effect of the public sector is statistically insignificant, and much smaller than the point-estimates reported by Fvlster and Henrekson. This is consistent with the agnostic conclusion, drawn by us and many others, that cross-country growth regressions are unlikely to give a reliable answer to whether a large public sector is growth promoting or retarding.

Keywords: PUBLIC EXPENDITURES; PUBLIC SECTOR; ECONOMIC GROWTH (search for similar items in EconPapers)
JEL-codes: E62 H20 H50 O57 (search for similar items in EconPapers)
Date: Written
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Related works:
Working Paper: Growth and the Public Sector: A reply (1998)
Journal Article: Growth and the public sector: A reply (1999)
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Persistent link: http://EconPapers.repec.org/RePEc:fth:uppaal:1999:1

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