Economic Growth and the Public Sector: A Comparison of Canada and Italy, 1870â€ 2013
Livio Di Matteo and
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Tom Barbiero: Ryerson University
No 69, Working Papers from Ryerson University, Department of Economics
There is considerable evidence that the size of the public sector can influence an economyâ€™s rate of economic growth. We investigate public sector spending of central governments and economic performance in two G7 countries over the longâ€ term, Canada and Italy. Their economic performance has diverged in the last 25 years and it is worth investigating whether the size of government was a contributing factor. We find that in both the case of Canada and Italy the size of central government spending directly affects the performance of their economies in an inverse Uâ€ shaped relationship known as a Scully/BARS Curve. These results suggest that along with modifying current central government size, other levels of governments may need to shrink their own spending.
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