Government Size, Unemployment, and Inflation Nexus in Eight Large Emerging Market Economies

Antonio Afonso, Huseyin Sen and Ayse Kaya

No 2018/38, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: Using a panel of eight large emerging market economies from 1980 to 2015, this paper seeks to assess the causal linkages between government size, unemployment, and inflation. Overall, our results suggest that the government size is positively associated with both unemployment and inflation. The Granger causality runs from the government size to unemployment and to inflation. From our analysis, two aspects stand out. First, the effects of government size on unemployment and inflation depend essentially on how the government size is measured. As long as government consumption spending is considered as the proxy measure of the government size, the government size is significantly and positively correlated with unemployment, and with inflation. Second, indirect taxes, like government consumption spending, have a positive as well as statistically significant association with unemployment. However, the direct taxes solely exert a strong effect on inflation in the countries considered.

Keywords: Government Size; Unemployment; Inflation; Emerging Market Economies (search for similar items in EconPapers)
JEL-codes: E61 E63 H10 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-mac and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Government Size, Unemployment and Inflation Nexus in Eight Large Emerging Market Economies (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp0382018

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