Exploring Cross-Country Variation in Government Shares: What Can We Learn from Relative Productivities?
No 25, Discussion Papers from Kyiv School of Economics
Government shares in total output are characterized by significant variation across countries. As a starting point of my study, I notice strong negative correlation between government consumption share and price of government services in terms of private consumption. Motivated by this empirical observation, I develop a neoclassical growth model with added government that is capable of matching the variation in government shares very closely using only relative prices. In addition, I provide empirical evidence showing that the relative price of government consumption increases in income which is consistent with distortions prevailing in poor countries. These two observations combined imply that government shares tend to be higher in poorer countries.
Keywords: Government consumption; Relative government shares; Relative international prices; Neoclassical growth model; the Penn World Table (search for similar items in EconPapers)
JEL-codes: E13 H40 H50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Note: Submitted to Macroeconomic Dynamics
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http://repec.kse.org.ua/pdf/KSE_dp25.pdf May 2010 (application/pdf)
Journal Article: EXPLORING CROSS-COUNTRY VARIATION IN GOVERNMENT SHARES: WHAT CAN WE LEARN FROM RELATIVE PRODUCTIVITIES? (2013)
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