Growth and the Public Sector: A reply

Jonas Agell (), Thomas Lindh () and Henry Ohlsson ()
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Jonas Agell: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

No 1999:1, Working Paper Series from Uppsala University, Department of Economics

Abstract: Fölster 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 Fölster 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: economic growth; public sector; taxation; government expenditure; cross-country regressons (search for similar items in EconPapers)
JEL-codes: E62 H20 H50 O57 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe and nep-pke
Date: Written

Published in European Journal of Political Economy, 1999, pages 359-366.

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Related works:
Working Paper: Growth and the Public Sector: a Reply (1999)
Journal Article: Growth and the public sector: A reply (1999)
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