Productivity in the United States and Its Relationship to Government Activity: An Analysis of 57 Years, 1929-1986

Edgar A Peden

Public Choice, 1991, vol. 69, issue 2, 153-73

Abstract: Under the classical supply-side paradigm of productivity growth, raising government economic above rudimentary levels integrates markets and provides useful public goods which enhance growth. Beyond some point however, increasing government activity discourages growth through tax disincentives and by rewarding dependence on government expenditures. Defining government economic activity to be government expenditures as a percentage of GNP, this study looks first at data for the period 1889-1986 and shows that the U.S. economy has experienced what is predicted by the supply-side paradigm. In addition, the study presents an econometric analysis of government's effects on productivity for the period 1929-86 using a standard neoclassical growth model. This analysis validates the classical supply-side paradigm and shows that maximum productivity growth occurs when government expenditures represent about 20 percent of GNP, far less than the 35 percent which existed in 1986. Copyright 1991 by Kluwer Academic Publishers

Date: 1991
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