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As a provider of public goods and a corrector of externalities, the government has a significant effect on the local environment. Based on annual province-level data from 1998 to 2015, this paper decomposes the changes in sulfur dioxide emissions into end pollution control effects and source pollution control effects by a complete decomposition model. It then uses a spatial econometric model to investigate how government size expansion affects sulfur dioxide emissions. The results show that under the promotion system based on appointment, the local government size and the neighboring government size are not conducive to reducing local sulfur dioxide emissions. With the expansion of the government size, the degree of environmental degradation caused by competition among governments is more serious. In the way of influence, the impact of local government size on the sulfur dioxide emissions is mainly through restraining the effect of end pollution control. The impact of neighboring government size on the sulfur dioxide emissions is mainly through weakening the effect of source pollution control.

The expansion of government size will have dual effects on a country’s green innovation. An appropriately sized government size increases marginal productivity and stimulates the development of green innovation by increasing government expenditure. On the contrary, an excessively sized government creates a huge administrative agency, which not only increases the tax burden but also damages social welfare by excessive intervention. Therefore, the effect of government size on green innovation is not linear. In order to prove this proposition, this study examines the impact of government size on green innovation in 166 countries between 1995 and 2018, using a two-way fixed effects model. The results reveal an inverted U-shaped relationship between government size and the level of green innovation, indicating that optimal government size may maximize a country’s green innovation output. The results further suggest that this inverted U-shaped relationship is mainly influenced by environmental regulations and financial support. Finally, our heterogeneity analysis demonstrates that the inverted U-shaped relationship is more pronounced for countries with high organizational inertia and more R&D expenditure than for those with low organizational inertia and less R&D expenditure. This finding makes up for the research gap between government size and green innovation and provides a reference for countries to formulate the optimal government size to improve the level of green innovation.

Our paper intersects two topics in growth theory: the growth maximizing government size and the role of Social Capital in development. We modify a simple overlapping generations framework by introducing two key features: a production function à la Barro together with the possibility that public officials steal a fraction of public resources under their own control. As underlined by the literature on corruption, Social Capital affects public officials' accountability through many channels which also affect the probability of being caught for embezzlement and misappropriation of public resources. Therefore, in our endogenous growth model such probability is taken as a proxy of Social Capital. We find that maximum growth rates are compatible with Big Government size, measured both in terms of expenditures and public officials, when associated with high levels of Social Capital.

Research background: Output volatility has potentially adverse consequences on the economy and the stabilizing role of fiscal policy is linked to the share of government size in an economy. Hence, given the relative large share of government in developing countries, government size is expected to play an important role in stabilizing output volatility. Purpose: This study examines the relationship between output volatility and government size in Nigeria. The study seeks to establish if government size mitigates output volatility in Nigeria. Research methodology: The study employs the Autoregressive Distributed Lag (ARDL) technique after conducting stationarity and co-integration tests. Results: The results of the ARDL estimate showed that government size lessens output volatility but the magnitude was insignificant. Further, the study found that volatility in aggregate government spending; international oil price and public debt were significant determinants of output volatility in Nigeria. Novelty: This showed that the automatic stabilization role of government size on output volatility could not be established. The automatic stabilization role of fiscal policy can be improved by increasing social security transfers (pension payment), payments of unemployment benefits and increasing civil servants minimum wage.

Research background: Although a number of studies have been conducted on the relationship between public expenditure and economic growth, it is difficult to tell with certainty whether or not an increase in public expenditure is good for economic growth. This lack of consensus on the results of the previous empirical findings makes this study of paramount importance as we take stock of the available empirical evidence from the 1980s to date. Purpose: In this paper, theoretical and empirical literature on the relationship between government expenditure and economic growth has been reviewed in detail. Focus was placed on the review of literature that assessed the impact of government spending on economic growth. Research Methodology: This study grouped studies on the impact of public expenditure on economic growth based on their results. Three groups emerged – positive impact, negative impact and no impact. This was followed by a review of each relevant study and an evaluation of which outcome was more prevalent among the existing studies on the subject. Results: The literature reviewed has shown that the impact of government spending on economic growth is not clear cut. It varies from positive to negative; with some studies even finding no impact. Although the impact of government spending on economic growth was found to be inconclusive, the scale tilts towards a positive impact. Novelty: The study provides an insight into the relationship between public expenditure and economic growth based on a comprehensive review of previous empirical evidence across various countries since the 1980s.

The effect of the government size on economic growth still keeps its unclear status despite the works in this field. According to the Armey Hypothesis 1995 , which one of the studies developed for the volume of government size in economy, the increase in the public volume in economy will increase economic growth up to a certain level, and when the maximum level is reached, the increase in public volume will cause decreases in economic growth. In this study, the issues of whether the Armey Hypothesis is valid or not for G7 countries has been investigated, and the optimum public volume has been determined for G7 countries. In testing Armey Curve hypothesis, we use ARDL cointegration procedure. The results of empirical findings argue that the Armey Hypothesis is valid for US, and Canada, and France when it is invalid for other G7 countries., Kamu büyüklüğünün ekonomik büyüme üzerindeki etkisi, literatür genelindeki çalışmalara rağmen belirsizliğini korumaktadır. Armey Hipotezi'ne 1995 göre, kamu hacmindeki artış, belli bir seviyeye kadar ekonomik büyümeyi pozitif olarak etkilerken belli bir maksimum düzeyenden sonra kamu hacmindeki artış ekonomik büyümede düşüşe neden olmaktadır. Bu çalışmada, Armey Hipotezinin G7 ülkeleri için geçerli olup olmadığı konusu araştırılmış ve G7 ülkeleri için optimum kamu hacmi belirlenmiştir. Armey Curve hipotezini test edilmesinde, ARDL eşbütünleşme modeli kullanılmıştır. Ampirik bulgulara göre, Armey Hipotezinin ABD, Kanada ve Fransa için geçerli iken diğer G7 ülkelerinde geçerli olmadığı tespit edilmiştir

Environmental sustainability is one of three pillars of sustainability. However, a significant worldwide deterioration in the environment has been experienced since the Industrial Revolution, but the efforts to protect the environment date back to the 1970s. In this context, many economic and non-economic factors underlying environmental degradation have been investigated until today, but the influence of economic freedom indicators and education on the environment have been relatively less analyzed and the researchers have mainly focused on the influence of economic and institutional variables on the environment. Therefore, this paper investigates the reciprocal interplay among economic freedom indicators, education, and environment in EU member states over the 2000–2018 term by using a causality test with cross-sectional dependency and heterogeneity and taking the research gap into consideration. The causality analysis indicates that market-oriented economic structure and education can be beneficial in combatting environmental degradation.

We examine the effect of population size on government size for a panel of 130 countries for the period between 1970 and 2014. We show that previous analyses of the nexus between population size and government size were incorrectly specified, not accounting for cross-sectional dependence, non-stationarity and cointegration as well as parameter heterogeneity. Using a panel time-series approach that adequately models these issues, we find that population size has a positive long-run effect on government size. This finding suggests that the detrimental effects of population size on government size (primarily due to a greater risk of social conflict) dominate its beneficial ones (primarily due to scale economies). We also show that population size increases government size especially in countries that are vulnerable to social conflict due to ethnic heterogeneity.

Capital flows are key variables supporting the sustainability of economic growth. Based on a dataset of 31 provinces in China over 1997&ndash, 2014, this paper utilizes the system generalized method of moments (System GMM) to investigate the determinants of capital flows and analyses the impact of government size on capital flows. Preliminary results show that government size exerts a negative effect on capital inflows. Specifically, government spending on capital construction and administration crowds out capital inflows significantly, while government spending on science and technology crowds in capital inflows dramatically. In addition, high quality human capital, advanced financial development, and high-level trade openness are conducive to capital inflows. High tax and labor cost impede capital inflows. These results provide proof for China&rsquo, s government to reduce the size of government spending appropriately and optimize its government expenditure structure for the purpose of crowding in capital inflows.

We assess how “big” government should reasonably be in a number of advanced countries. First, we will link the recent findings of Data Envelope Analysis on efficient public expenditure with the question of the size of the government. Second, we report descriptive analysis of various government performance indicators in relation to public expenditure to provide indications of overall “optimal” spending across spending categories. In principle, the highest savings potential is in the biggest expenditure categories, public consumption and social expenditure. info:eu-repo/semantics/publishedVersion

The relation between trade openness and government size is examined under the compensation hypothesis and efficiency hypothesis in the literature. Therefore, in this paper, we examine the government size and trade openness under the theoretical framework of compensation and efficiency hypotheses. The compensation and efficiency hypotheses are tested in the long run for Turkey between the periods 1975 and 2013. In our model the government size is described as a function of trade openness. The existence of unit root is tested, then cointegration and Granger causality tests are implemented. Empirically no causality is diagnosed between government size and trade openness. In result, we found that both hypotheses are not valid for Turkey in the long run. This result is also supported by various works in the literature.

We study how financial transactions may respond to exogenous variation in trade opportunities not only directly, but also through policy channels. In more open economies, governments may find it more difficult to fund and enforce public policies that substitute private financial transactions, and more appealing to deregulate financial markets. We propose a simple theoretical model of such policy-mediated relationships between trade and financial development. Empirically, we document in a country panel dataset that, before the 2007–2008 crisis, financial market volumes were robustly and negatively related to the share of government consumption in GDP in regressions that also include indicators of financial regulation and trade openness, and we seek support for a causal interpretation of this result in instrumental variable specifications.

We study the relevance of fiscal rules for growth in an European Union (EU) panel. Our results show that they foster growth, while stricter fiscal rules mitigate the adverse impact on growth from big governments. Moreover, more recent EU member states have gained from the implementation of fiscal rules. info:eu-repo/semantics/publishedVersion

This paper uses Japanese prefecture-level data for the years 1979 and 1996 to examine how the relationship between government size and life satisfaction changes. The major findings are: (1) Government size has a detrimental effect on life satisfaction when government size impedes economic growth in the economic development stage. However, this effect clearly decreases when government size is not associated with economic growth in the developed stage. (2) Particularized trust is positively associated with life satisfaction of females but not with that of males. Such a tendency becomes more remarkable in the developed stage. These results are unchanged when the endogeneity bias caused by local government size and proxies of trust are controlled for.

I. INTRODUCTION In developing and developed economies alike, growth of income per capita is generally accompanied by a rise in the share of government expenditure in gross domestic product (GDP), as well as an increase in the participation of women in the labor force. We argue that these phenomena are causally related, propose a model that motivates that relation, and provide evidence in its support. The share of total government spending in GDP has increased by 10% in Organization for Economic Cooperation and Development (OECD) countries, in the last two decades alone (see World Bank 2001), and this rise comes in the wake of significant secular increases in government spending in the 20th century. (1) Apace with this rise in the government's share of GDP, female labor force participation has also risen from 28% to 41% in the same countries and the same period. (2) As for the long-run, Goldin (1995) reports an increase in female labor force participation in the United States between 1900 and 1980, from 3.1% to 50% of the labor force, (3) while according to Tanzi and Schuknecht (2000) the share of government spending rose in the same period from 8% to 30%. Figure 1 plots the change in government size as a share of GDP versus the change in female labor force participation from 1972 to 1999 for a sample of selected countries. The twin increases in female labor force participation and government size are not a coincidence; they are causally related. The mechanism at work is twofold; as wages rise with development and women choose to work more hours in the market, they increase their demand for services that tend to be provided by the government, including education, healthcare, care for the elderly and the unemployed. The additional provision of government services further encourages female labor market participation as it decreases the time necessary to perform those home and family activities whose burden falls disproportionately on women. (4) This circle of causation leads to higher female participation and larger governments. Our growth model extends Galor and Weil (1996). In addition to female participation in market activities, fertility, and output, government size is also endogenously determined. The rise in hourly wages that accompanies development and capital accumulation leads to an increase in female labor force participation as the opportunity cost of caring for the children increases. In our model, government spending decreases the time cost of performing household chores. One obvious connection is the provision of extra school hours and child care, which decrease the time cost of child rearing. As couples--women in particular--participate more in market activities, they choose higher government spending to compensate for time spent in the market. Under certain conditions, which we make explicit, they also choose higher tax rates, with the result that female labor force participation and government size increase apace. (5) As female labor force participation leads to a larger government, the total cost of raising children is reduced for two reasons: the total time at home decreases, and the time cost per child also falls as public spending partly substitutes for home "production" of child care, education, and other activities. (6) The decision to work outside the home is likely to lead women to demand wider and better provision of the public services that alleviate their unequal burden as caregiver at home. In addition, the role of women as insurer of family risks may lead to a demand for more government intervention as women become less present at home. There is an additional mechanism through the composition of the public labor force. Government jobs in teaching and health--which are a large portion of total public jobs--tend to be filled mostly by women. (7) Our model draws on the solid literature on growth, fertility, and female labor force participation, which is supported by microevidence. …

The purpose of this paper is to employ the quantile regression methodology to investigate the relationship between government size and economic growth using a panel data set for 24 OECD countries. We find that the magnitude of the effect of government size on economic growth varies through the quantiles. When the economic growth is low, increasing the size of the government may have a positive effect and stimulate economic growth. However, as the economic growth rate increases, such an effect declines and has a negative effect on economic growth.

This paper analyses the effects in terms of size and volatility of government revenue and spending on growth in OECD and EU countries. The results of the paper suggest that both variables are detrimental to growth. In particular, looking more closely at the effect of each component of government revenue and spending, the results point out that i) indirect taxes (size and volatility); ii) social contributions (size and volatility); iii) government consumption (size and volatility); iv) subsidies (size); and v) government investment (volatility) have a sizeable, negative and statistically significant effect on growth. info:eu-repo/semantics/publishedVersion

Este artículo presenta un modelo espacial de competencia política para analizar el efecto que tiene la competencia política sobre el desempeño gubernamental, en el sentido de la eficiencia del nivel de empleo burocrático y en la provisión de bienes públicos. En contraste con otros argumentos que relacionan positivamente la competencia política y la eficiencia del gobierno, el principal resultado muestra que en cualquier equilibrio político-económico la competencia política genera incentivos para un nivel de empleo burocrático excesivo y una provisión ineficiente de bienes públicos. This paper presents a spatial model of political competition exploring the effects of political competition on government performance, in the context of efficiency on the provision of public goods and the size of bureaucracy. In contrast with other arguments that sustain that there is a positive relationship between political competition and efficiency, this study's main result shows that in any political-economic equilibrium political competition provides incentives for an excess of bureaucratic employment and an inefficient provision of public goods. Cet article présent un modèle spatial de concurrence politique pour analyser l'effet de la concurrence politique sur les décisions prises par un gouvernement en ce qui concerne l'efficacité du niveau d'emploi bureaucratique et la provision des biens publics. Nous montrons que tout équilibre politique-économique issu de la concurrence politique se traduit dans un niveau d'emploi bureaucratique excessif et une provision de biens publics tout à fait inefficace. Ce résultat est contraire à d'autres études que soulignent un lien positif entre la concurrence politique et la performance du gouvernement.

Several recent studies have found a negative relation between government size and economic growth in rich countries. Since countries with big government have experienced above average improvements in both the Economic freedom index and the KOF globalization index, we argue that existing studies suffer from an omitted variable problem. Using Bayesian Averaging over Classical Estimates (BACE) in a panel of OECD countries, we show that the negative effect from government size is very robust and may have been underestimated in previous studies. The dataset is an updated and extended version of the data used by Fölster and Henrekson (2001), covering the period 1970-1995. We find clear evidence that globalization has a positive effect on growth, but find no effect of economic freedom. Finally, we find that the negative effect of government size decreases substantially in size but remains significant when we add the period 1996-2005 to the sample. Our results support the idea that countries with big government can use institutional quality such as economic freedom and globalization to mitigate negative growth effects of taxes and public expenditure.

This paper contributes to the resurging debate on the reform of the international monetary system by studying how the size of the public sector influences the choice of the exchange rate regime. In response to a meeting of the Bretton Woods Committee in 1993, Anna Schwartz (2000) argued that a large public sector impedes the viability of an exchange rate regime with a fixed rule for convertibility. Quantifying her line of reasoning from a welfare-based perspective leads to three main results: (1) Returning to a fixed exchange rate arrangement implies high welfare losses for countries with large public sectors; (2) The welfare loss is increasing in government size; (3) Increasing the share of public expenditures reduces output volatility, yet increasing the level of distortionary taxes enhances it

Until now there was little evidence of the influence of large governments on happiness and when it existed, it was positive. We show that structural government consumption and other measures of long-term government imbalances significantly decrease happiness and life satisfaction in European countries. In some cases there is evidence of an inverted U-shaped relationship between the Government burden and happiness, for which the negative relationship begin just before the median. This evidence may lead European politicians to reject the idea that bigger Governments lead to higher people satisfaction and to win elections. This result is consistent with people valuing (negatively) expectations for future tax increases, macroeconomic imbalances, and austerity.

This paper presents instrumental variables estimates of the effects of GDP per capita volatility on the size of government. We show that for a panel of 157 countries spanning more than half a century, rainfall volatility has a significant positive effect on GDP per capita volatility in countries with above median temperatures. In these countries rainfall volatility has also a significant positive reduced-form effect on the GDP share of government. There is no significant reduced-form effect in the sample of countries with below median temperatures where rainfall volatility has no significant effect on GDP per capita volatility. Using rainfall volatility as an instrumental variable in the sample of countries with above median temperatures yields that greater GDP per capita volatility leads to a significantly higher GDP share of government.

Validity of globalization brings out the question of whether greater openness is a booster reason to have a bigger government. This issue has been started to be discussed in relevant literature since the late 1970s. In this context, the purpose of this study is to examine the linkage between trade openness and the size of the government in Turkey over the period 1974-2011. Using residual based co-integration approach, we fail to find an evidence of a long run relationship. In addition, we do not provide causal support of compensation hypothesis in Turkish economy.

In this paper, we use data from a corruption survey conducted among top politicians and high level civil servants in 290 Swedish municipalities in 2007 to investigate the effects of government size on corruption. We construct several measures of corruption based on the survey, and combine these corruption measures with detailed administrative municipality level data to estimate the effect of local government resources on corruption. In cross-sectional analysis, we find a robust and negative association between total public expenditure and corruption. When we use lagged population growth rates and age structure as instruments for expenditure in 2-stage-least-squares regressions, the point estimates remain negative, but are no longer significant. In contrast with standard political economy models, where a bigger public sector is typically assumed to cause problems with corruption and public office abuse, our results suggest that corruption pressures may be particularly high when government resources are limited.

This paper estimates the relationship between various sub-indicators of economic freedom and life satisfaction for 122 countries. The estimation results show that life satisfaction is positively related to the quality of the legal system and protection of property rights. For poor countries, freedom of trade fosters life satisfaction as well. Life satisfaction is independent from the size of the government and sound money and tends to be negatively related to low regulation. If the relationship between life satisfaction and economic freedom is controlled for income per capita, life satisfaction is independent from economic freedom. This indicates that the relationship between life satisfaction and economic freedom is mediated by income per capita.

In the growth literature, there is a nonlinear relationship between economic growth and government size, which is similar to an inverted U-shaped curve. This curve can be used to determine the optimum share of government expenditures. This paper, using threshold panel approach, attempts to investigate this nonlinear effect for 15 European countries, empirically. For the size of government, four measures are considered as follows: (i) total expenditures to gross domestic product, (ii) final consumption expenditures to gross domestic product, (iii) current expenditures other than final consumption to gross domestic product and (iv) government gross fixed capital formation to gross domestic product. Estimation results show that the inverted U-shaped curve is approved for four measures. The estimated optimum shares are 41.7%, 15.8%, 19.4% and 2.5%, respectively.

Does economic freedom increase the utility of an average citizen? Public choice theory in particular has emphasized the shortcomings of governments and voting processes, and the advantages of relying on markets and individual decision making. However, an increasing amount of people are refusing to accept classical measures like GDP as signs of improvements in welfare. Data on subjective well-being allow economists to test if economic freedom really does improve the overall quality of life. However, existing studies have either failed to control for necessary control variables or lacked theoretical foundation. This paper explains economic and psychological reasons why the influence of economic freedom reaches beyond material well-being. Empirical results from a panel of 86 countries over the 1990-2005 period suggest that economic freedom indeed has a positive effect on happiness. Specifically legal security and property rights, access to sound money, and freedom from excessive regulation are significantly positive throughout the analysis. Regarding freedom to trade, the results show that particularly regulatory trade barriers have a significant negative effect. The positive effect depends on socio-demographic characteristics and is, on average, stronger for poorer countries and left-wing voters, and varies with age.

Student achievement has been identified as an important contributor to economic growth. This paper investigates the relationship between redistributive government activities and investment in human capital measured by student performance in international comparative tests in Mathematics and Science during the period 1980 to 2003. In fixed effects panel models, government consumption, government social expenditures, and the progressivity of the income tax system have negative effects on student achievement. These results are robust to a variety of model specifications, such as conditioning on educational expenditures, and alternative measures of student performance from the World Bank. Our estimates indicate that increased government size by 10 percent reduces student achievement by 0.1 standard deviations.

An examination of how increased turnover among legislators in the fifty U.S. states affects fiscal policy and economic growth finds that it makes legislators short-sighted. Turnover increases the size of government by increasing the shares of both total spending and taxes in income. In particular, turnover increases capital expenditure and income taxes, both of which may cause long-run distortions in the economy. Further, increased turnover, by resulting in inefficient fiscal policy, reduces long-term economic growth.

In a recent paper, Colombier (2009) uses a robust estimation technique and claims to find empirical evidence that government size has not been detrimental to growth for OECD countries during the 1970 to 2001 period, and that endogenous growth theory is not corroborated. We examine the robustness of these findings, and show that Colombier’s results differ from those in other recent papers not because of the estimator used, but because of the exclusion of other control variables. Adding time fixed effects to Colombier’s data set, and using the same econometric method, we obtain results in line with other findings, corroborating endogenous growth theory. Adding further control variables illustrates the robustness of the negative correlation between total tax revenue and economic growth for both instrumented and non-instrumented regressions.

The literature on the relationship between the size of government and economic growth is full of seemingly contradictory findings. This conflict is largely explained by variations in definitions and the countries studied. An alternative approach—of limiting the focus to studies of the relationship in rich countries, measuring government size as total taxes or total expenditure relative to GDP and relying on panel data estimations with variation over time—reveals a more consistent picture. The most recent studies find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate. We discuss efforts to make sense of this correlation, and note several pitfalls involved in giving it a causal interpretation. Against this background, we discuss two explanations of why several countries with high taxes seem able to enjoy above average growth: (i) that countries with higher social trust levels are able to develop larger government sectors without harming the economy, and (ii) that countries with large governments compensate for high taxes and spending by implementing market-friendly policies in other areas. Both explanations are supported by current research.

This paper uses individual-level data from Japan (2003) to examine the effects of government size and the disclosure of official government information on happiness. The major findings are as follows. (1) Disclosure of official information is positively associated with the happiness of workers, but not with that of non-workers. (2) Government size has a positive effect on the happiness of non-workers, but not with that of workers. Therefore, information asymmetry between government and citizens is thought to reduce the happiness of those who bear the cost of public service but does not affect the happiness of public service beneficiaries.

Previous studies on the effect of government size on corruption have produced mixed results. For the purpose of explaining these ambiguous results, our study investigates the effect of government size on corruption by taking into account the role of democracy level in each country. Using annual data from 82 countries from 1995 to 2008, the estimation results indicate that an increase in government size can lead to a decrease in corruption if democracy level is sufficiently high and, in contrast, can lead to an increase in corruption if it is too low. As a robustness check, estimations using a different index of corruption and a different proxy for government size are also conducted. The results show that our main results are robust. Furthermore, to deal with endogeneity problems, we conduct an instrumental variable estimation, the results of which support our main results. These findings provide some important implications for policymakers seeking to conduct government intervention without aggravating corruption.

We consider whether there is statistical evidence for a causal relationship between government expenditures and real GDP growth in postwar Japan. After studying the time-series properties of these variables, we find that government consumption and government investment both have a positive and causal effect on growth. This suggests that fiscal policy may not have been as ineffective during the last two decades of Japan’s stagnant growth as some have suggested, but may have helped to prevent an even more severe balance-sheet recession after the collapse of the Japanese bubble economy.

Using panel data from 1996 to 2005, this paper shows that the effect of government size on corruption is positive at a low level of democracy, but it is negative at a high level. This finding could fill the gaps in previous studies whose findings on the relationship between corruption and government size are controversial.

Both theoretical predictions of Keynesian view and a large body of empirical studies on developed countries suggest that business cycle fluctuations can be partially smoothed by counter-cyclical fiscal policies. Our paper extends this strand of literature by considering the nexus between output fluctuations and government size in the context of Chinese fiscal federalism. Using a sample of 29 Chinese provinces for the period of 1994-2007, we fail to provide consistent evidence for the stabilizing effect of fiscal policies. In particular, we find that under the tax assignment system (fen shui zhi), neither the central government’s fiscal transfers nor the provincial budgetary and extra-budgetary revenues help reduce economic volatility. Such results are shown to be robust across different model specifications, volatility measures and estimation techniques.

Using time-series techniques and panels data, the paper analyses for the EU countries in the period 1970-2009 the existence and shape of the “BARS curve” (Barro, Armey, Rahn, and Scully), connecting the size of Government (measured by the share of public expenditure on GDP) to the rate of economic growth. Individual countries research has been conducted for 12 countries for whom enough time series were available, while panel analysis has been performed both for EU-27 and for subgroups, distinguished by their different socio-economic and monetary structures, and per capita GDP. BARS curves were generally found, and the shares of actual public expenditures generally exceed substantially those related to the maximization of GDP growth. However, great differences do emerge. For the 12 countries examined by time-series techniques, the difference between the actual level and the peak of the BARS curve ranges from 5.7 points for Germany and 18.1 points for Belgium. Panel data analysis for EU-27 shows a peak of the BARS curve at 37%, while the actual level is about 47%. While, panel data disaggregation shows a similar situation for the Western Continental Countries, with a smaller gap for Anglo-Saxon countries. For low per capita GDP countries the peak is higher than for the mature economies. So, further research may prove useful to show light on the disparities emerging in the empirical analysis of individual countries and of the panel sub-groups. However, the present research provides enough evidence that high GDP countries of EU have overcome the level of government size compatible with GDP growth rate maximization.

Corruption, which remains a serious problem in many countries, has prompted considerable research in recent years. This paper adds to the extant literature with insights on factors influencing corrupt activity. Using cross-country data for about 100 nations, the roles of national history, geography, and government are examined to see how they affect conditions for corruption, both qualitatively and quantitatively. The innovative aspects of this research include use of a wide set of historical, geographical, and governmental determinants of corruption, as well as detailed assessment of several previously considered determinants. The main issues addressed are the effects of the size and scope of government on the incidence of corruption across countries, and the significance of historical and geographic factors in corruption. Regarding the first question, the authors find the size and scope of government can significantly affect corruption. On the second, it is shown that historical institutional inertia in older countries and new rent-seeking opportunities in younger nations can encourage corruption, while certain geographic factors can mitigate corruption. The paper ends with discussion aimed at the policymaker.

Student achievement has been identified as important contributor to economic growth. This paper investigates the relationship between redistributive government activities and investment in human capital measured by student performance in international comparative tests in Mathematics and Science during the period 1980 to 2003. In fixed effects panel models, government consumption, government social expenditures, and the progressivity of the income tax system have negative effects on student achievement. We report results from a variety of model specifications and social expenditure components, and our best estimate indicates that increased government size by 10 percent reduces student achievement by 0.1 standard deviations.

This paper investigates the relationship between trade openness and the size of governments, both theoretically and empirically. We argue that openness can increase the size of governments through two channels: (1) a terms of trade externality, whereby trade lowers the domestic cost of taxation, and (2) the demand for insurance, whereby trade raises risk and public transfers. We provide a unified framework for studying and testing these two mechanisms. Our main theoretical prediction is that the relative strength of the two explanations depends on a key parameter, namely, the elasticity of substitution between domestic and foreign goods. Moreover, while the first mechanism is inefficient from the standpoint of world welfare, the second is instead optimal. In the empirical part of the paper, we provide new evidence on the positive association between openness and government size and we explore its determinants. Consistently with the terms of trade externality channel, we show that the correlation is contingent on a low elasticity of substitution between domestic and foreign goods. Our findings raise warnings that globalization may have led to inefficiently large governments.

This paper presents an analysis of how alternative models of the business cycle can replicate the stylized fact that large governments are associated with less volatile economies. Our analysis shows that adding nominal rigidities and costs of capital adjustment to an otherwise standard RBC model can generate a negative correlation between government size and the volatility of output. However, in the model, we find that the stabilizing effect is only due to a composition effect and it is not present when we look at the volatility of private output. Given that empirically we also observe a negative correlation between government size and the volatility of consumption, we modify the model by introducing rule-of-thumb consumers. In this modified version of our initial model we observe that consumption volatility is also reduced when government size increases in similar way to the observed pattern in OECD economies over the last 45 years.

In this paper, we investigate the relationship between government size and the unemployment rate using a structural error correction model that describes both the short-run dynamics and long-run determination of the unemployment rate. Using data from twenty OECD countries from 1970 to 1999, we find that government size, measured as total government outlays as a percentage of GDP, plays a significant role in affecting the steady-state unemployment rate. We disaggregate government outlays and find that transfers and subsidies significantly affect the steady-state unemployment rate while government expenditures on goods and services play no significant role.

Previous empirical studies have found a positive relationship between the size of the legislature and the size of government. Those studies, however, do not adequately address the concerns of endogeneity. In contrast, this paper exploits an exogenous variation in the size of the legislature induced by a statutory law linking council size to the number of eligible voters in Swedish local governments. The statutory law can potentially create discontinuities between number of eligible voters and council size at certain known values. These discontinuities are used to construct instrumental variable estimates of the effect of council size on government size. In contrast to previous findings, the results show that an increase of the council size leads to a statistically and economically significant decrease in spending and revenues. On average, spending and revenues are decreased by roughly 0.5-0.8 percent for each additional council member.

This paper provides empirical evidence of the relation between trade openness, capital openness and government expenditures in a cross sectional time-series context. It is shown that capital openness is significantly and negatively related to government expenditures in line with the conventional wisdom that capital mobility may undermine the ability of governments to maintain larger public sectors. More importantly, the compensation hypothesis originally proposed by Rodrik (1998) and traceable back to Cameron (1978) is not in general supported by the data.

The goal of this paper is to investigate the relationship between fiscal decentralization and the size of government. Using a pooled mean group estimator, which has rarely been applied in this context, we analyze a set of 23 OECD countries over the period 1970–2008. In contrast to previous studies we use an improved measure of fiscal decentralization, which effectively quantifies the degree of sub-national autonomy. Our results suggest that, in the long run, fiscal decentralization decreases the size of government.

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. info:eu-repo/semantics/publishedVersion

Raising of social-economic welfare of society is the main task of any government's economic policy, which is not only defined by the amount of produced goods and services. In addition a number of objectives need to be solved and all this requires to implement the effective economic policy by the government. Proper planning of economic policy of the government is especially important for the countries with a transition economy when the important institutions are at the stage of formation for the functioning of market economy. Considering this, fiscal stimulus elaborated by the government needs in-depth analysis because they impact on the current and future situation of all sectors of economy and are reflected on economic growth of the country. Fiscal Stimulus, as one of the important economic leverage of government, on the one hand, determine the macroeconomic sustainability of the country, on the other hand, it is the main instrument to respond to economic crises. Consequently, its role is important to reach macroeconomic equilibrium in a short and long run period. In developed as well asin developing countries, including Georgia, the activation of fiscal stimulus led to the changes of government size in the economy, which gives the additional impulse of assessing the role and significance of the change of government size in the process of promoting economic growth. After the collapse of the Soviet Union, all Soviet countries including Georgia started modernization of economy. This naturally generated the need for a consistent reduction of almost 100% of government size in economy. The issue of reducing the involvement of the government in the economy was a precondition for proper economic policies, thus became an important issue what should be the indicator of optimal size of the government., საზოგადოების სოციალურ-ეკონომიკური კეთილდღეობის ამაღლება ნებისმიერი მთავრობის ეკონომიკური პოლიტიკის მთავარი ამოცანაა, რაც მხოლოდ წარმოებული საქონლითა და მომსახურების რაოდენობით არ განისაზღვრება. დამატებით საჭიროა მთელი რიგი ამოცანების გადაწყვეტა და ეს ყველაფერი მთავრობის მხრიდან ეფექტიანი ეკონომიკური პოლიტიკის გატარებას მოითხოვს. მთავრობის ეკონომიკური პოლიტიკის სწორად დაგეგმვა განსაკუთრებით მნიშვნელოვანია გარდამავალი პერიოდის ეკონომიკის მქონე ქვეყნებისათვის, სადაც საბაზრო ეკონომიკის ფუნქციონირებისათვის აუცილებელი ინსტიტუტები ჯერ კიდევ ჩამოყალიბების სტადიაზეა. აღნიშნულის გათვალისწინებით მთავრობის მიერ შემუშავებული ფისკალური სტიმულები მოითხოვს სიღრმისეულ ანალიზს, რადგან ისინი გავლენას ახდენს ეკონომიკის ყველა სექტორის მიმდინარე თუ სამომავლო მდგომარეობაზე და ასახვას ჰპოვებს ქვეყნის ეკონომიკურ ზრდაზე. ფისკალური სტიმულები, როგორც მთავრობის ხელთ არსებული ერთ-ერთი მნიშვნელოვანი ეკონომიკური ბერკეტი, ერთი მხრივ, განსაზღვრავს ქვეყნის მაკროეკონომიკურ მდგომარეობას, მეორე მხრივ, წარმოადგენს ეკონომიკურ კრიზისებზე გავლენის მოხდენის საშუალებას. შესაბამისად, მისი როლი მნიშვნელოვანია, როგორც მოკლევადიანი ასევე გრძელვადიანი მაკროეკონომიკური წონასწორობის მიღწევის პროცესში. განვითარებად თუ განვითარებულ ქვეყნებში, ისევე როგორც საქართველოში, ფისკალური სტიმულების გააქტიურებამ განაპირობა ეკონომიკაში მთავრობის ზომის ცვლილება. აღნიშნულმა, ეკონომიკური ზრდის ხელშეწყობისთვის, კიდევ უფრო მეტი აქტუალურობა შესძინა მთავრობის ზომის ცვლილების როლისა და მნიშვნელობის შეფასების საკითხს. საბჭოთა კავშირის დაშლის შემდეგ მასში შემავალი ყველა ქვეყანა, მათ შორის საქართველო, ეკონომიკის მოდერნიზაციის გზაზე დადგა. ამან ბუნებრივად წარმოშვა მთავრობის ზომის თითქმის 100%-იანი მაჩვენებლის თანმიმდევრული შემცირების აუცილებლობა. ეკონომიკაში მთავრობის მონაწილეობის შემცირების საკითხი სწორი ეკონომიკური პოლიტიკის გატარებისათვის აუცილებელი პირობა იყო, მაგრამ ამასთან აქტუალური გახდა საკითხი იმის შესახებ, თუ როგორი უნდა ყოფილიყო მთავრობის ოპტიმალური ზომის მაჩვენებელი.

We study the relevance of fiscal rules for growth in an EU panel. Our results show that they foster growth, while stricter fiscal rules mitigate the adverse impact on growth from big governments. Moreover, more recent EU member states have gained from the implementation of fiscal rules. UECE – Research Unit on Complexity and Economics. UECE is supported by FCT (Fundação para a Ciência e a Tecnologia, Portugal.)

This paper analyzes the relationship between inflation, output and government size by reexamining the time inconsistency of optimal monetary and fiscal policies in a general equilibrium model with staggered timing structure for the acquisition of nominal money a la Neiss (Neiss, Katharine S. (1999), Discretionary Inflation in a General Equilibrium Model, Journal of Money, Credit and Banking, 31(3), pp. 357–374.), and public expenditure financed by means of a distortive tax. It is shown that, with predetermined wages, the equilibrium rate of inflation is above the Friedman rule and the equilibrium tax rate is below the efficient level. In particular, the discretionary rate of inflation is nonmonotonically related to the natural output, positively related to government size, and negatively related to the degree of central bank conservatism. Finally, a regime with commitment leads to welfare improvements over a regime with discretion.

This paper analyses the effects in terms of size and volatility of government revenue and spending on growth in OECD and EU countries. The results of the paper suggest that both variables are detrimental to growth. In particular, looking more closely at the effect of each component of government revenue and spending, the results point out that i) indirect taxes (size and volatility); ii) social contributions (size and volatility); iii) government consumption (size and volatility); iv) subsidies (size); and v) government investment (volatility) have a sizeable, negative and statistically significant effect on growth.