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Growth and the Public Sector: A reply

Jonas Agell, Thomas Lindh and Henry Ohlsson ()

No 1999:1, Working Paper Series from Uppsala University, Department of Economics

Abstract: Fölster and Henrekson (1998) claim that they, by addressing a number of econometric problems, can establish that it is likely that economies with a large public sector grow more slowly than economies with a small public sector. But their regressions are fundamentally flawed. Re-estimating their growth equation using theoretically valid instruments, we find that the growth effect of the public sector is statistically insignificant, and much smaller than the point-estimates reported by Fölster and Henrekson. This is consistent with the agnostic conclusion, drawn by us and many others, that cross-country growth regressions are unlikely to give a reliable answer to whether a large public sector is growth promoting or retarding.

Keywords: economic growth; public sector; taxation; government expenditure; cross-country regressons (search for similar items in EconPapers)
JEL-codes: E62 H20 H50 O57 (search for similar items in EconPapers)
Pages: 10 pages
Date: 1998-12-19
New Economics Papers: this item is included in nep-pbe and nep-pke
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Published in European Journal of Political Economy, 1999, pages 359-366.

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