Growth Effects of Government Expenditure and Taxation in Rich Countries

Stefan Fölster () and Magnus Henrekson ()
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Stefan Fölster: The Swedish Research Institute of Trade, Postal: SE-103 29 Stockholm, Sweden

No 391, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: A number of cross-country comparisons do not find a robust negative relationship between government size and economic growth. In part this may reflect the prediction in economic theory that a negative relationship should exist primarily for rich countries with large public sectors. In this paper an econometric panel study is conducted on a sample of rich countries covering the 1970-95 period. Extended extreme bounds analyses are reported based on a regression model that tackles a number of econometric issues. Our general finding is that the more econometric problems are addressed, the more robust the relationship between government size and economic growth appears. Our most complete specifications are robust even according to the stringent extreme bounds criterion.

Keywords: Economic growth; Extreme bounds analysis; Fiscal Policy; Government expenditure; Public sector; Taxation; Cross-country regressions; Panel regressions; Robustness test. (search for similar items in EconPapers)
JEL-codes: E62 H20 H50 O23 O40 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2000-06-20
New Economics Papers: this item is included in nep-pub
Note: Published in the European Economic Review, 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Published in European Economic Review, 2001, pages 1501-1520.

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Related works:
Journal Article: Growth effects of government expenditure and taxation in rich countries (2001)
Working Paper: Growth Effects of Government Expenditure and Taxation in Rich Countries (2000)
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