Government Scale as a Stabilizer: Effects on Output Volatility and Losses

António Afonso, José Alves and Frederico Silva Leal

No 11993, CESifo Working Paper Series from CESifo

Abstract: We examine the impact of government size on economic fluctuations and the role of fiscal policy in promoting macroeconomic stability in the period 1980-2024. The results indicate that indirect taxes, capital taxes, and social security contributions (as a percentage of GDP) are associated with lower output volatility, whereas direct taxes tend to amplify it, particularly over longer horizons. On the expenditure side, current spending – especially public wages and interest payments – also exerts a stabilising influence. We further provide new estimates of output losses from the two most severe recent recessions in the EU27 – the Great Recession and the COVID-19 pandemic – and find evidence that the severity of these losses may be linked to the scale of the government, both before and after the crises.

Keywords: government size; fiscal policy; macroeconomic stability; output losses (search for similar items in EconPapers)
JEL-codes: E32 E62 H20 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ifo.de/DocDL/cesifo1_wp11993.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11993

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().