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The net foreign asset position and government size

Iñaki Erauskin ()

International Review of Economics & Finance, 2015, vol. 35, issue C, 130-148

Abstract: This paper analyzes the relationship between the net foreign asset position of a country, and government size and consumption–wealth ratio in a stochastically growing small open economy. The model suggests that more indebted countries are associated with bigger governments when utility-enhancing government spending is also volatility-reducing. More indebted countries would have a higher volatility originating from domestic sources, thus encouraging government to increase its size. Consumption–wealth ratio would also be higher for more indebted countries. The empirical evidence based on a sample of 49 countries for the period 1970–2009 broadly supports the main results of the model across many different specifications.

Keywords: Net foreign asset position; Government size; Consumption–wealth ratio (search for similar items in EconPapers)
JEL-codes: F41 F43 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1016/j.iref.2014.09.010

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