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In the knowledge economy, globalisation and its various types are increasingly recognised as the substance of competencies. The major two types of globalisation possessing macroeconomic utility, i.e. FDI and trade, are significantly influenced by country-level factors. Given their differing characteristics, they react to macroeconomic factors differently. In this view, this study looks at how institutional variables affected trade and investment from 30 countries into India from 2002 to 2020, as India plays a major role in the global arena, it attracts a sizable amount of international investment and foreign trade. Four institutional factors are considered in the analysis and the results suggest that improved property rights protection and government integrity in India attracts both FDI and imports. The increased government size and high-quality regulatory environment although positively influence FDI and imports, both have an insignificant effect on FDI while both are significant in case of imports. Alternative estimators are applied to obtain an appropriate synchronisation between variables but the Random effect model came out to have optimum utility to be applied in the current study. The study is controlled for the effects of human capital since it is an important regressor of internationalisation behaviour. Based on the results of granger causality, FDI is taken as a control variable for imports. The distinguishing feature of this study is that a comparative analysis between FDI and trade inflow in India from an institutional perspective has been undertaken which is not present in the extant literature. [ABSTRACT FROM AUTHOR]

Governments implemented fiscal stimulus packages to alleviate the global financial crisis of 2007–2009. Using annual data from 1996 to 2019, we investigate economic growth in a large sample of countries for pre-and post-Global Financial Crisis years. Our approach analyzes the interaction between institutional quality and government size (government expenditures as share of GDP), reinforced by threshold estimations. We document that economies react to government size depending on the quality of the institutions in question. First, fixed effects models indicate higher institutional quality has positive effects on growth, while government size—and its interactions with institutional quality—has negative effects. Second, the coefficients of government size on economic growth are negative with higher institutional quality and become larger in the post-Global Financial Crisis years. These combined results indicate that higher-quality institutions make economies less tolerant of rising government expenditures than lower-quality institutions. Our main findings support institutional quality as the channel through which fiscal policy has real effects. The evidence herein is robust to measures of institutional quality from different databases. [ABSTRACT FROM AUTHOR]

Numerous studies have pointed out that as the political and economic environment changes, the structures of corruption in China are constantly evolving. Specifically, the transaction-type corruption has surged and the auto-corruption (non-transactional administrative corruption) has receded. As such, what kind of structural characteristics does China's corruption types present today? What factors can help us explain the variances of these structural characteristics? Drawn on the quantitative analysis of a novel dataset, this study found that: in terms of personal traits, the gender of the defendant and urban–rural residence have a significant impact on the type of corruption; in the macro-institutional environment, the development of private economy and the size of the government have opposite effects on the composition of the corruption type. Privatization increases the probability of transaction-type corruption. The size of the government increases the probability of auto-corruption. [ABSTRACT FROM AUTHOR]

This paper provides new insights into the growth-maximizing size of government in Turkey. Unlike previous studies that traditionally use the share of government spending in GDP as a proxy variable of government size, in this paper we consider a fairly large number of proxy variables ranging from the share of tax revenues in GDP to the share of public investment in total investment. After reviewing the potential non-linear relationship between government size and growth, we estimate various thresholds for government size that maximize growth. To this end, we use the threshold autoregressive model proposed by Hansen (1996: 413-430; 2000: 575-603)) and apply it to Turkey's annual time-series data for the period from 1974 to 2019. Overall, we arrive at the following main result: Government size is non-linearly related to growth, confirming the existence of a growth-maximizing threshold for any measure of government size, beyond which growth tends to slow down as government size continues to increase. More precisely, the results show that the estimated thresholds for government size lie within the range of 4.28–15.19%, depending on the definition or proxy variable representing government size. [ABSTRACT FROM AUTHOR]

CO2 emission reduction is a long-term strategy for China to promote its government and economic size. However, this study examines the asymmetric impact of government size and economic size on CO2 emissions in China. The study embraces the nonlinear ARDL framework of time series data analysis as proposed by Shin et al. (2014), which disentangles the positive and negative shocks to government size and economic size. We find that the response of CO2 emissions to government size and economic size positive shocks differs from the negative shocks. Empirical outcomes revealed that a positive shock of government size exerts an insignificant positive on CO2 emissions, while a negative shock of government size reduces CO2 emissions. More specifically, a positive shock of economic size mitigates the CO2 emissions of China in long run. Policymakers should redesign the energy and environment policies in the framework of government size and economy size. [ABSTRACT FROM AUTHOR]

Corruption is often a source of contentious debate, covering different areas of knowledge, such as philosophy and sociology. In this paper we assess the effects of corruption on economic activity and highlight the relevance of the size of the government. We use dynamic models and the generalised method of moments approach for a panel of 48 countries, and as a measure of corruption the Transparency International's Corruption Perceptions Index, from 2012 to 2019. We find a significant adverse effect of corruption on the level and growth of GDP per capita, but that large governments benefit less from reducing corruption. Furthermore, developing economies, regardless of government size, benefit less from reducing corruption, while government size is not sufficient to explain the influence of corruption on economic activity, although the level of effectiveness of public services is crucial. Finally, our findings suggest that private investment is a potential transmission channel for corruption. [ABSTRACT FROM AUTHOR]

This study uses a large firm-level data set covering more than 80 countries to explore the effects of firm size, city size, and government size on perceived and experienced corruption. Four points summarize our main findings, which seem instructive and new. First, there is a broad structural similarity in the major determinants of perceived and experienced corruption. Second, larger firms and larger government sizes reduce the perceptions and experiences of corruption. Third, larger cities raise corruption perceptions and experience. Fourth, when the sample is limited to large cities, the corruption-lowering effect of government size loses significance throughout, while firm size loses significance in experience regressions. [ABSTRACT FROM AUTHOR]

Government size, corruption, and tax policy can influence allocation towards necessity or opportunity-driven entrepreneurship. Using a comparative multi-source sample across 52 countries during 2005–2015, we apply a mixed-process estimation of the simultaneously unrelated system of equations and unpack these heterogeneous and complex effects. Interestingly, our results show that the influence of tax policy and corruption on necessity and opportunity entrepreneurship depends on government size. Our results hold for numerous robustness analyses. Plain English summary: Institutions matter for the choice of opportunity and necessity-driven entrepreneurship. Government size, the level of corruption, and tax policy directly affect entrepreneurs' motivation and incentives. We study 52 countries during 2005–2015 to find out to what extent tax rate, corruption, and a range of government expenditure change the allocation of necessity and opportunity entrepreneurship. Our main implications are for (1) Research: Formal and informal institutions need to be considered when studying entrepreneurship allocation, particularly in an emerging and developing country context. Results suggest that the impact of the same institutional settings and informal institutions such as corruption on necessity and opportunity entrepreneurship is not uniform in size and scope and have different magnitude. The effect of government expenditure on necessity and opportunity entrepreneurship is not ubiquitous. (2) Management: The broader institutional context affects allocation of entrepreneurship, and potential entrepreneurs can consider how corruption in particular can affect them. (3) Policy: Policymakerscan measure the extent to which opportunity and necessity entrepreneurship are likely to change, when they make changes to tax policy, resources for public spending, and take anti-corruption measures. [ABSTRACT FROM AUTHOR]

The role of government size and digitization in the process of environmental quality is a matter of considerable debate in the field of environmental economics. BRICS economies have suffered from environmental pollution. This paper scrutinizes that how CO2 emissions respond to government size and digitization in BRICS economies. Empirical estimates of the ARDL approach show that government size has a positive impact on CO2 in Brazil, India, and China, while negative impact on CO2 in Russia in the long run. The long-run estimates reveal a negative and significant effect of digitization on CO2 in Brazil, India, and China. Education and e-learning activities have a favorable and crucial role played in environmental quality in Brazil, India, and China. Based on these findings, BRICS authorities should improve the efficiency of government expenditures and invest more in digitization to improve the quality of the environment. [ABSTRACT FROM AUTHOR]

This paper estimates a panel model in which the relationship between trade and government size is determined by countries' per capita GDP. The panel model covers 126 countries during the 1980–2018 period. Estimates of the model show that the correlation between trade and government size is decreasing in the level of countries' per capita GDP. For high-income countries with a per capita GDP above $12000US, the association between trade and government size is negative. For low-income countries with a per capita GDP below $1000US, the relationship between trade and government size is positive. In the year 2018, the average country had a per capita GDP of about $14228US. For this country, the estimated coefficients suggest that a 1% increase in trade had a predicted association with the long-run level of the size of government of over 0.17%. The paper also presents estimates suggesting that the relationship between trade and the composition of government spending differs depending on countries' incomes. [ABSTRACT FROM AUTHOR]

This article examines how the characteristics of a government, which are defined in terms of the quality, size, and function of the government, influence the quality of life of its citizens by applying fuzzy-set analysis on data from OECD countries. The results show that the quality of life is enhanced when the quality of the government, or its policy effectiveness, is maintained at a certain level, while an increase in government size, spending, and intervention has a negative impact. Compared to when the government is actively involved in producing public goods, when the government's quality and size are at a certain optimal level, it is observed that the quality of life is enhanced when the economy is stabilized by a market mechanism and security is guaranteed both internally and externally. Therefore, this result indicates that without economic and social stability, the expansion of social policy is unlikely to have a positive impact on improving the quality of life as intended. [ABSTRACT FROM AUTHOR]

This paper investigates the role of model uncertainty in explaining the different findings in the literature regarding the determinants of government expenditure and its components. In particular, we systematically assess the evidentiary support for nine different theories using a novel model averaging method that allows for endogeneity. Our results suggest that the government size and its components are explained by multiple mechanisms that work simultaneously but differ in their impact and importance. Hence, policy makers should avoid relying on any particular model to make policy decisions. More precisely, for general government total expenditure we find decisive evidence for the demography theory and a strong evidence for the globalization and political institution theory. In the case of central government total expenditure, we find that income inequality and macroeconomic policy play a decisive role in addition to demography. [ABSTRACT FROM AUTHOR]

Workers who earn wage premiums for adverse job characteristics face a higher tax-price than peers of equal human capital working under more favorable conditions. Facing a higher cost per unit for public goods, they in turn demand a relatively small public sector. This may explain patterns of political affiliation across industries where differences in nonpecuniary aspects are often significant. I test this with county level data on fatality rates and support for the Republican candidate in the 2004 US Presidential election, finding that fatality rates remain positive and significant drivers of GOP support through various regression specifications. These results are robust to cross-sectional and panel data on individual contributions reported to the Federal Election Commission for the 2004, 2008, and 2012 US Presidential elections. [ABSTRACT FROM AUTHOR]

Do government activities discourage or leverage nonprofit activities? The extant literature has proposed competing lines of arguments, making the net effect ambiguous. The present study conducts a meta-analysis to synthesize extant studies concerning the relationship between the level of government activities and the level of nonprofit activities within a locality and explore potential moderating effects. Through systematically reviewing 30 extant studies, the study finds a mostly positive association between the level of government activities and the level of nonprofit activities, but this relationship is generally weak and sometimes statistically insignificant. In addition, the moderator analysis concludes that data structure, unit of analysis, and field of activity significantly moderate effect size estimates across extant studies. Overall, the net relationship between the level of government activities and the level of nonprofit activities within a locality ranges from null to slight positive. Government activities generally seem not to discourage nonprofit activities, but may slightly leverage them. [ABSTRACT FROM AUTHOR]

What is the effect of legislature size on public spending? An answer to this question is provided by Weingast et al. (J Polit Econ 89(4):642-664, 1981), whose 'law of 1/ n' posits that an increase in the number of elected representatives always leads to an increase in public spending. Because elected politicians regard the tax base as a common pool from which they can finance specific projects for their constituencies, and these specific constituencies internalize the full benefits of the projects, but only bear a fraction of the costs (projects are financed from the common tax base), fiscal inefficiency will increase with the number of representatives. In this paper, I test the validity of the 'law of 1/ n' using a dataset of 9325 German municipalities between 2008 and 2010. Through the application of a regression discontinuity design, many of the methodological pitfalls of previous studies can be avoided and a valid estimation of the causal effect of legislature size on public spending for German municipalities can be determined. The results do not corroborate the positive findings of previous studies, which generally supported the implications of the 'law of 1/ n'. For the years 2008-2010, I find a negative effect of legislature size on public spending in German municipal councils. [ABSTRACT FROM AUTHOR]

The present article aims to investigate the effect of government size and trade openness on gender wage gap in developing countries during 2001-2013. The economy model analysis was done using country level aggregate data. The government size positively affected gender wage gap, which indicates that any increase in government size leads to an increase in gender wage gap. In addition, the trade openness coefficient decreases the gender wage gap significantly. In fact, increasing the trade openness coefficient and external investment increases women’s wage on the one hand and decreases gender wage gap on the other. [ABSTRACT FROM AUTHOR]

Government is often considered the safe sector of an open economy that provides households with insurance against external risk exposure. Among highly integrated economies, however, households should be able to exploit common financial markets to insure themselves. In this paper we examine the relationship between government size, trade openness, and output volatility across fully integrated economies using Japan's regional income accounting and public finance data. The contributions of the government- and market-based insurances to inter-regional risk sharing are also estimated. The empirical results reveal some unique aspects of the state-market interactions under full economic integration with vertical fiscal imbalance. [ABSTRACT FROM AUTHOR]

In the literature on political economy and public choice, it is typically assumed that government size correlates positively with public corruption. The empirical literature, however, is inconclusive, owing to both measurement problems and endogeneity. This paper creates a corruption index based on original data from a survey covering top politicians and civil servants in all Swedish municipalities. The effect of more politicians on corruption problems is analyzed using discontinuities in the required minimum size of local councils. Despite the fact that Sweden consistently has been ranked among the least corrupt countries in the world, the survey suggest that non-trivial corruption problems are present in Sweden. Municipalities with more local council seats have more reported corruption problems, and the regression discontinuity design suggests that the effect is causal. [ABSTRACT FROM AUTHOR]

Does fiscal discipline restrain the government from increasing its budget size? To answer this question, this paper investigates whether Wagner's law is satisfied for two types of states: US states, in which fiscal sovereignty is established, and German states, in which fiscal transfer dependence is high and budget constraints are softened. In US states, we demonstrate that Wagner's law is validated, while some of the balanced budget requirements weaken the validity of the law. In German states, we find an 'inverse' law, especially after the bailouts of Bremen and Saarland. The 'inverse' law is a new channel of growth in government size and means that soft budget constraints cause significant negative correlation between government size and output. These results are robust regardless of whether intergovernmental fiscal transfers are taken into account, while they quantitatively change the validity of the law. Our findings imply that the characteristics of fiscal discipline are the prime determinants of the channel and degree of growth in government size. [ABSTRACT FROM AUTHOR]

Which impact does government size have on life satisfaction, and how do effects of bigger government differ between income groups in society? Previous studies typically employed country averages and thus neglected possibly heterogeneous happiness effects between income groups. This paper addresses empirically the effects of government spending on subjective well-being of individuals belonging to different income groups. Our analysis is based on individual data from 25 European countries participating in the European Social Survey. In contrast to most previous studies we take account of the endogeneity between relative income position and reported life satisfaction by an instrumental variable approach. Our results suggest, first, that most government spending categories, including social protection, are on average negatively related to individual well-being. Secondly, estimated marginal effects of health, education and social protection spending at different income levels show that spending increases always have a stronger negative effect on high income groups' well-being than on low income groups' life satisfaction. For all government spending categories, marginal happiness effects of higher public spending are clearly negative for income groups at the top. [ABSTRACT FROM AUTHOR]

Does government size and structure adapt to changes in government's organisational environment (particularly to uncertainty and complexity) as predicted by organisational theory? We find - using a range of statistical analyses - support for each of the major theories of organisation adaptation (the contingency-based view, resource-based view, and the rational choice view). We find that both government size and structure change - holding other factors constant - for changes in the uncertainty and complexity of governments' organisational environments. We find seven clusters of governments which adapt their organisational sizes differently in response to changes in the uncertainty and complexity of their organisational environments - and four clusters of governments with differing preferences for the way they adapt governmental structures. We also use the available data to divide governments according to the extent to which they adapt their organisational size and structure reactively (after changes occur in their organisational environment), contemporaneously or strategically (before these changes in their organisational environment occur). [ABSTRACT FROM AUTHOR]

Recently, a wide and empirically backed consensus has emerged arguing that direct democratic control over government's spending decisions through initiatives and referendums constrains government size. This paper extends the discussion to German direct democracy reforms of the mid-1990s, which granted voters rights to launch initiatives on local issues, but neither the right nor the responsibility of voting on the implied costs of these initiatives. An analysis of around 2300 voter initiatives in the population of around 13,000 German municipalities from 2002 to 2009 demonstrates that in this sample-and in contrast to most of the Swiss and US evidence-direct democracy causes an expansion of local government size on average by around 8 % in annual per capita expenditure and revenue per initiative (on economic projects). This quite substantial increase in government size is financed by an increase in local taxes. [ABSTRACT FROM AUTHOR]

This paper investigates the impact of constitutional rights on the level of public expenditure in a large sample of countries. To do so, we construct a panel of 73 countries from 1960 to 2011. We first investigate factors that drive constitutional changes regarding constitutional rights. To address potential endogeneity concerns in the choice of constitutional rules, we rely on an instrumental variable within estimation (country and time fixed effects) to estimate the impact of constitutional rights on government size. We find that larger governments tend to inscribe fewer rights in their constitutions, but we do not detect any impact of constitutional rights on the government size. [ABSTRACT FROM AUTHOR]

This paper studies the empirical link between government size, institutions and economic activity using a panel of 140 countries over 40 years. Our results, robust under different econometric techniques, show mostly a negative effect of government size on output, while institutional quality has generally a positive impact. Moreover, the detrimental effect of government size on economic activity is stronger the lower institutional quality, and the positive effect of institutional quality on output increases with smaller government sizes. [ABSTRACT FROM AUTHOR]

This paper examines the effect of the elasticity of substitution between public and private inputs on the optimal fiscal policy, long-run growth and welfare. To this end, we consider an endogenous growth model with productive public spending. If the baseline government size is suboptimally low (high), the higher the elasticity of substitution the higher (lower) are the optimal government size and, in the presence of congestion, the optimal income tax. In any case, the higher the elasticity of substitution the higher are the optimal long-run growth rate and welfare. [ABSTRACT FROM AUTHOR]

Public choice insights, with an emphasis on expressive voting, provide support for the empirical findings that starving the beast is not an effective way of reducing government. The key implication behind that theoretical support is that political ideology trumps narrowly defined self-interest in influencing voting decisions. [ABSTRACT FROM AUTHOR]

This paper investigates the impact of a supermajority rule on the law of 1/ n, which posits that a larger number of districts increases the size of government. Our analysis suggests that supermajority rule, despite the claim that it restrains excessive spending, increases the 1/ n effect, because qualified majorities require logrolling to attract additional members. Using data from US states from 1970 to 2007, we find that the adoption of a supermajority rule has a robust, worsening effect on the fiscal commons problem identified by the law of 1/ n. [ABSTRACT FROM AUTHOR]

Higher levels of government expenditures and more regulation naturally invite corruption, because they provide the opportunity for government officials to be paid off for regulatory favors, subsidies, and government contracts. Some countries have relatively large governments but lower levels of corruption. Scandinavian countries offer examples. While institutional differences may explain some of the cross-country differences in corruption, the most consistent relationship is that high levels of regulation are associated with more corruption. When looking at the effect of the size of government, it is the regulatory state, rather than the productive or redistributive state, that is associated with corruption. [ABSTRACT FROM AUTHOR]

Several researches have shown that economic freedom is positively related to life satisfaction. Only a few studies, however, have examined which aspects of economic freedom (small government size, quality of the legal system, sound money, trade openness or no regulation) drive this relationship. Furthermore, most studies construe the influence of economic freedom as additional to the influence of income per capita on life satisfaction. No research has studied the potential mediating role of income per capita or other mediators in the relationship between economic freedom and life satisfaction. In order to fill these gaps, this paper aims (1) to investigate which aspects of economic freedom are most related to life satisfaction, and (2) to test whether these relationships are mediated by income and trust. Based on a sample of 120 countries, we find that life satisfaction is positively related to the quality of the legal system and negatively related to small government size. Income per capita mediates the positive influence of the quality of the legal system on life satisfaction. Trust is found to mediate the positive influence of the quality of legal system and the negative influence of small government size on life satisfaction, but the significance of these indirect effects depends on the type of economic freedom indicators used. We find no significant direct effects from the economic freedom indicators on life satisfaction. [ABSTRACT FROM AUTHOR]

While previous research documents a negative relationship between government size and economic growth, suggesting an economic cost of big government, a given government size generally affects growth differently in different countries. As a possible explanation of this differential effect, we explore whether government legitimacy (measured by satisfaction with the way democracy works) influences how a certain government size affects growth. On the positive side, a government perceived as legitimate may 'get away' with being big since legitimacy can affect behavioral response to, and therefore the economic growth cost of, taxation and government expenditures. On the negative side, perceived legitimacy may make voters less prone to acquire information, which in turn facilitates interest-group oriented or populist policies that harm growth. A panel-data analysis of up to 30 developed countries, in which two different measures of the size of government are interacted with government legitimacy, reveals that perceived legitimacy exacerbates a negative growth effect of government size in the long run. This could be interpreted as governments taking advantage of being regarded as legitimate in order to secure short-term support at a long-term cost to the economy. [ABSTRACT FROM AUTHOR]

Fiscal federalism is commonly held to reduce the size of government, but how does it do so: through shrinking the welfare state, cutting government consumption, or reducing public investment? This paper examines tax competition under fiscal federalism through the lens of imperfect competition theory, derives new empirical implications from different theories of fiscal federalism, and tests those hypotheses with new variables and data. Cross-national statistical results show that jurisdictional competition under fiscal federalism is associated with reductions in the administrative expense of government but not the size of the welfare state. Moreover, the apparent impact of fiscal federalism with a high degree of jurisdictional competition is larger than that estimated in previous research. Once the models have been appropriately specified, the United States is no longer an outlier among high-income democracies on either government consumption or social spending. Close examination of the data reveals that some fiscally federal systems better approximate a 'market-preserving model' and others a 'capital-privileging' or 'state-corroding' model. [ABSTRACT FROM AUTHOR]

The recent moves of the Indian economy towards further opening up of the economy with less government control has brought about changes in its policy structure. The objective of this study is to test the hypothesis that greater economic freedom leads to higher levels of economic growth in a federal system like India where business regulations, taxation, and government spending differ widely across states. Pooled linear regression model is applied to categorical data containing economic freedom and its three components as independent variables, and growth rates of income per capita and gross state domestic product as dependent variable, for a panel of twenty states for three time periods, 2004/2005, 2006/2007 and 2009/2010. While examining this relationship, the variables like initial income per capita, initial literacy rate, sectoral composition, and inflation rate are taken as control. The results tend to establish the fundamental effects of economic freedom in fostering economic growth. Three individual dimensions of economic freedom namely size of government, strong rule of law, and flexible regulations governing credit, labour, and product markets are likely to exert beneficial impacts on income growth. Initial income per capita exerts a positive impact, thus proving the prevalence of regional divergence on this front. High human capital, greater share of the services and inflation exert direct impact on growth. [ABSTRACT FROM AUTHOR]

According to an influential theoretical argument, presidential systems tend to present smaller governments relative to parliamentary countries because the separation between those who decide the size of the fiscal purse and those who allocate it creates incentives for lower public expenditures. In practice, however, presidential and parliamentary countries come in many forms. In particular, variation in procedural rules that assign budget prerogatives across the popular branches of government may affect the underlying incentives that differentiate these types of regimes in terms of fiscal outcomes. More specifically, we argue that more hierarchical rules that concentrate budgetary power in the executive relative to the legislature do not only reduce the extent of the common pool problem but also limit the degree of separation of powers, which may have a countervailing effect. Consequently, the effect of the form of government on public expenditures is conditional on specific procedural rules. We test this hypothesis on a broad cross-section of countries and find that presidentialism has a negative impact on government size only when executive discretion in the budget process is low (that is, in a context of separation of powers). However, the negative effect of presidentialism on expenditures vanishes when the executive's discretion over the budget process is higher. This result, in addition to highlighting that not all budget institutions have the same effect on incentives and outcomes, points out how important it is to go beyond broad characterizations of political institutions for explaining policy outcomes, and more generally, for moving forward the research agenda in constitutional political economy. [ABSTRACT FROM AUTHOR]

This paper analyzes the effects of government size and of the composition of public expenditure on economic development. Using the system-GMM estimator for linear dynamic panel data models, on a sample covering up to 156 countries and 5-year periods from 1980 to 2010, we find that government size as a percentage of GDP has a quadratic (inverted U-shaped) effect on the growth rate of the Human Development Index (HDI). This effect is especially pronounced in developed and high-income countries. We also find that the composition of public expenditure affects development, with the share of five subcomponents exhibiting nonlinear relationships with HDI growth. [ABSTRACT FROM AUTHOR]

We consider an economy comprising a private sector and a civil-service sector. The private sector has to pay the civil-service sector while using the productive services the latter generates. We apply the pay-and-use Shapley value axiomatized in a previous paper. With the help of the Nash bargaining solution, we then endogenize the size of government. In particular, we define and apply the concept of "democratic stability" to a simple model and predict which agents (if any) become civil servants. [ABSTRACT FROM AUTHOR]

Does the effective number of veto players in a political system explain the rate of government growth? Panel data analyses are conducted in order to test several measures of veto players against each other, and these results are compared with similar analyses of government fractionalization. The analyses indicate that veto players and especially government fractionalization exert a constraining effect on changes in the size of government, but also that the effect is not consistent over time: neither veto players in general nor fractionalization of government in particular exerted any constraining effect during the decades of rapid government growth due to welfare state creation and expansion in the 1960s and 1970s. The strength of government fractionalization vis-a-vis the veto player measures in explaining changes in the size of government suggest that the constellation of partisan veto players within coalition governments matters, while the effect of institutional veto players remains uncertain. [ABSTRACT FROM AUTHOR]

This paper investigates the relationship between fiscal federalism and the sizes of local governments. While many empirical studies emphasized that grants encourage the growth of local public spending and local taxes constrain it, they are more silent regarding the effects of different types of tax autonomy. The paper addresses this issue by arguing that tax decentralization as organized on tax bases used only by local governments ( tax-separation), rather than on tax-base sharing, would restrain local public expenditures. Using an unbalanced panel of OECD countries, the key finding is that only property taxes-mostly based on a 'tax-separation' scheme-seem to favor smaller local governments. Thus, while tax decentralization is a necessary condition for limiting the growth of local governments, it does not appear sufficient, as tax-separation schemes among government levels would in fact be required. [ABSTRACT FROM AUTHOR]

This paper theorizes that the impact of ideology on the size of US state governments increases with state income. This idea is tested using state-level ideology data derived from the voting behavior of state congressional representatives. Empirically the interaction of ideology and mean income is a key determinant of state government size. At 1960s levels of income the impact of ideology is negligible. At 1997 levels of income a one standard-deviation move towards the left of the ideology spectrum increases state government size by about half a standard deviation. Estimated income elasticities differentiated by state and time are found to be increasing with ideology and diminishing with income, as predicted by the theory. [ABSTRACT FROM AUTHOR]

Theories explaining government size and its consequences are of two varieties. The first portrays government as a provider of public goods and a corrector of externalities. The second associates larger governments with bureaucratic inefficiency and special-interest-group influence. What distinguishes these alternatives is that only in the former is governmental expansion generally associated with an increase in social welfare. In the latter, the link between government size and public goods provision (or social welfare) is negative. We study the empirical significance of these competing claims by examining the relationship between government size and a particular public good, namely environmental quality (notably, air quality measured by SO concentrations), for 42 countries over the period 1971-1996. We find that the relationship is negative, even after accounting for the quality of government (quality of bureaucracy and the level of corruption). This result may not prove conclusively that the growth of government has been driven by factors other than concern for the public good, but it creates a presumption against the theory of government size that emphasizes public good provision. [ABSTRACT FROM AUTHOR]

This paper extends the empirical literature about the effects of fiscal decentralization on the growth of government along three dimensions. It distinguishes between the effects of the level of decentralization from the way local governments finance their expenditures (common pool versus own resources); it uses a panel cointegration approach to separate the long run effects of decentralization from the short run dynamics; and it extends and revises the datasets generally used in these empirical analyses. The results show that the amount of revenue raised by sub-national governments leads to a long-term fall in the size of government but grants have the opposite effect. In addition, a greater decentralization of expenditure leads to greater overall spending. When the short-term is considered these influences work slowly, as the speed of adjustment towards the desired government size is relatively sluggish. In addition, in the short run, there is also a clear effect from the role of local revenue raising powers that stimulates the growth of government. These results appear robust to changes in the composition of the variables, countries and periods included the sample. [ABSTRACT FROM AUTHOR]

We investigate empirically how party ideology influences size and scope of government as measured by the size of government, tax structure and labor market regulation. Our dataset comprises 49 US states over the 1993-2009 period. We employ the new data on the ideological mapping of US legislatures by Shor and McCarty (Am. Polit. Sci. Rev. 105(3):530-551, ) that considers spatial and temporal differences in Democratic and Republican Party ideology. We distinguish between three types of divided government: overall divided government, proposal division and approval division. The main result suggests that Republican governors have been more active in deregulating labor markets. We find that ideology-induced policies were counteracted under overall divided government and proposal division. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

From a theoretical standpoint, there are reasons to believe that political competition and electoral participation might have opposite effects on the size of government. We investigate empirically this possibility using data from a panel of 104 countries from 1960. We find that reforms enhancing political competition tend to limit the size of government, while reforms increasing electoral participation tend to increase the size of government. These results are robust for the global sample and across different regions. Our findings reinforce the empirical relevance of the distinction between political competition and participation. [ABSTRACT FROM AUTHOR]

The aim of this paper is to investigate the impact of fiscal decentralization on the size of regional governments in Spain, by controlling for economies of scale, interregional heterogeneity and institutional framework. We study it over 1985 to 2004 using a panel dataset of seventeen spanish regions. The results can be easily summarized. Firstly, it supports the classic public goods theory of a trade-off-between the economic benefits of size and the costs of heterogeneity. Secondly, it doesn't reject the 'Leviathan' hypothesis and neither does the 'common pool' hypothesis. Thirdly, by contrast, the paper partly rejects the 'Wallis'' hypothesis. It argues that government size is mediated by financial resources obtained through intergovernmental grants, consistent with welfare economics and positive economic policies. We conclude that later advances in the decentralisation process must be compatible with the goal of reducing fiscal imbalances that emanate from the vertical structure of fiscal power. [ABSTRACT FROM AUTHOR]

Our study aims to explore new directions for researches on government's role in enhancing quality of life (QOL). Although government can influence, to the greatest extent, people's happiness, very few studies have systemically examined the quantitative or qualitative attributes of government in happiness enhancement, compared with the large volume of studies on economic, political, and cultural factors' impact on QOL. Related to government's role in happiness, we suggest 'nine new research directions,' all of which can generally be related with its' quantitative and qualitative attributes. Even though much existing researches have focused on a part of quantitative sides of government, there are still many remaining attributes to be highlighted. Moreover, we expect that new, composite and nonlinear quality attributes of government will provide bountiful research topics in the future. Also, cross-boundary comparisons and mixtures between quality and quantity, as well as the conditional macro-context for government's role, suggest new ideas for QOL studies. [ABSTRACT FROM AUTHOR]

Existing theory on the form of government suggests that a parliamentary system promotes a larger size of government than does a presidential system. This paper extends the existing theory by allowing for distortionary taxation. A main result is that if taxation is sufficiently distortionary, the parliamentary system may promote a smaller size of government than the presidential system. The proposed mechanism appears consistent with several empirical patterns in the data that cannot be explained by other theories. [ABSTRACT FROM AUTHOR]

This paper investigates the determinants of government size at the provincial level in China. We employ the panel data model as a platform for empirical analysis and control for endogeneity in the study. Our study shows that openness to trade and foreign direct investment (FDI) may curtail government expansion, and that the provincial-level public sector is characterized by economies of scale. This study also documents that Wagner's law does not hold true for China. Moreover, both expenditure decentralization and revenue decentralization contribute to the expansion of China's government. [ABSTRACT FROM AUTHOR]

This paper considers a political contest model wherein self-interested politicians seek rents from the public budget, while general voters make political efforts to protest against politicians' rent seeking directly (for example, through voting in referendums such as the passage of Proposition 13) or indirectly (for example, through donating money to organized groups such as the National Taxpayer Union). We show that the political contest may ironically lead to the Laffer paradox; that is, rent-seeking politicians may intend to set the tax rate higher than the revenue-maximizing rate. For taming Leviathans, political protests may not be as effective as competition among governments. [ABSTRACT FROM AUTHOR]

This paper investigates the impact of economic integration on the vertical structure of the public sector within a country. To tackle this issue we set up a model of fiscal federalism, where economic integration is assumed to affect central government tax revenues. The main findings are that when an increase of the impact of economic integration brings about a reduction in central government tax revenues, under certain conditions: (a) it reduces central government expenditure; (b) it reduces general government expenditure; (c) it increases local taxation; (d) it increases the degree of public sector decentralization. Quite interestingly, these results are consistent with different patterns of local public spending and grants to local government. [ABSTRACT FROM AUTHOR]

Is there such a thing as an optimal government size? We investigate the so-called Armey curve, which claims an inverted U-shaped relationship between government size and economic performance, using non-parametric Data Envelopment Analysis (DEA). The DEA scores are linked to control variables, such as initial per capita income, openness, population density, urbanization, country size and family size. For 23 OECD-countries we estimate the country specific efficiency scores, which reveal the extent to which a country uses excess public resources to achieve the observed growth rate of GDP. [ABSTRACT FROM AUTHOR]