Public expenditure and growth volatility: do "globalisation" and institutions matter?

Fabrizio Carmignani (), Emilio Colombo and Patrizio Tirelli

No 116, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: We revisit the empirical relationship between output volatility and government expenditure in a model where the two are jointly deter- mined. The key regressors in our model are trade and ¯nancial integra- tion indicators, institutional variables, including central bank indepen- dence, and a measure of de facto exchange rate °exibility. Our ¯ndings consistently signal that government discretion has destabilising e®ects on growth volatility. We con¯rm that government size increases with trade integration, but this has adverse e®ects because public spending is positively related to growth volatility. Institutions that increase policy- makers accountability limit the level of public expenditure and volatility. In this regard, our results support the view that stronger institutions increase policy efficiency.

Keywords: Output volatility; government expenditure; trade openness; financial openness; central bank independence; political institutions (search for similar items in EconPapers)
JEL-codes: E30 E58 E60 F10 F30 F43 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2007, Revised 2007
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:116

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