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The Effect of Government Size on the Steady-State Unemployment Rate: A Structural Error Correction Model

Burton Abrams () and Siyan Wang ()

No 06-05, Working Papers from University of Delaware, Department of Economics

Abstract: In this paper, we investigate the relationship between government size and the unemployment rate using a structural error correction model that describes both the short-run dynamics and long-run determination of the unemployment rate. Using data from twenty OECD countries from 1970 to 1999, we find that government size, measured as total government outlays as a percentage of GDP, plays a significant role in affecting the steady-state unemployment rate. We disaggregate government outlays and find that transfers and subsidies significantly affect the steady-state unemployment rate while government expenditures on goods and services play no significant role.

Keywords: Steady-State Unemployment Rate; Government Size; Error Correction Model; Dynamic Panel Data Model; Arellano-Bond Estimator (search for similar items in EconPapers)
JEL-codes: C23 H10 H19 H50 J64 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2006
New Economics Papers: this item is included in nep-pbe
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