Government size and output volatility: is there a relationship?

Matti Virén
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Matti Virén: Bank of Finland

Macroeconomics from EconWPA

Abstract: This paper provides some further tests for the proposition that a larger public sector leads to smaller output volatility. Both Gali and Fatas & Mihov have provided some evidence which appears to support this proposition. Their evidence is, however, based on a relatively small sample of countries. In this study, we go beyond the OECD sample and focus on a much larger World Bank data set covering up to 208 countries for the period 1960–2002. We also seek to utilise some time series aspects of the material by using pooled cross-section time series data. Tests with different models and measures clearly indicate that the original results are not very robust and the relationship between government size and output volatility is either nonexistent or very weak at best.

Keywords: government; fiscal policy; automatic stabilisers (search for similar items in EconPapers)
JEL-codes: E62 H30 E32 (search for similar items in EconPapers)
Date: Written 2005-08-24
Note: Type of Document - pdf; pages: 28
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