Government and growth

Carsten Colombier

MPRA Paper from University Library of Munich, Germany

Abstract: In contrast to most empirical growth studies, this study applies a robust estimator, which accounts for outliers, non-Gaussian distributions and a lack of quality in datasets like those for growth empirics. According to the empirical analysis, the relationship between government activities and economic growth is generally weak. Positive correlations with economic growth have been verified, however, for water and sewer systems and transport and communication infrastructures, as well as public research and development expenditures. The growth effects of transport and communication infrastructures in particular appear to be stable. Positive correlations have been identified for public educational expenses only at central government level. However, it must be stated that the relation between education and economic performance is complex. In contrast, no significant growth effects were found with respect to government revenues. As a consequence, the predictions of endogenous growth theory cannot be confirmed for the revenue side. Furthermore, no significant relation between government size and economic growth was confirmed. This suggests that the question of optimal government size is empirically not solvable. Thus, empirical analyses should be focused on the growth effects of single government activities.

Keywords: new growth empirics; government expenditures; modified maximum likelihood estimator; government size; fiscal policy; growth (search for similar items in EconPapers)
JEL-codes: C23 E62 H50 (search for similar items in EconPapers)
Date: 2004-09
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Published in Applied Economics 7.41(2009): pp. 899-912

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