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http://ssrn.com/abstract=1950570
 
 

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Economic Performance and Government Size


Antonio Afonso


Technical University of Lisbon - ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics); European Central Bank (ECB)

João Tovar Jalles


University of Aberdeen - Business School; European Central Bank, DG Economics - Fiscal Policies Division

October 28, 2011

ECB Working Paper No. 1399

Abstract:     
We construct a growth model with an explicit government role, where more government resources reduce the optimal level of private consumption and of output per worker. In the empirical analysis, for a panel of 108 countries from 1970-2008, we use different proxies for government size and institutional quality. Our results, consistent with the presented growth model, show a negative effect of the size of government on growth. Similarly, institutional quality has a positive impact on real growth, and government consumption is consistently detrimental to growth. Moreover, the negative effect of government size on growth is stronger the lower institutional quality, and the positive effect of institutional quality on growth increases with smaller governments. The negative effect on growth of the government size variables is more mitigated for Scandinavian legal origins, and stronger at lower levels of civil liberties and political rights. Finally, for the EU, better overall fiscal and expenditure rules improve growth.

Number of Pages in PDF File: 44

Keywords: Growth, institutions, fiscal rules, pooled mean group, common correlated effects

JEL Classification: C10, C23, H11, H30, O40

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Date posted: November 30, 2011  

Suggested Citation

Afonso, Antonio and Jalles, João Tovar, Economic Performance and Government Size (October 28, 2011). ECB Working Paper No. 1399. Available at SSRN: http://ssrn.com/abstract=1950570

Contact Information

Antonio Afonso (Contact Author)
Technical University of Lisbon - ISEG (School of Economics and Management) ( email )
R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal
+351 21 392 2807 (Phone)
+351 21 396 6407 (Fax)
HOME PAGE: http://www.iseg.utl.pt/~aafonso/AAWeb.html
UECE (Research Unit on Complexity and Economics)
Rua Miguel Lupi 20
Lisbon, 1249-078
Portugal
+351-213 925 912 (Phone)
+351-213 971 196 (Fax)
HOME PAGE: http://www.iseg.utl.pt/~uece/
European Central Bank (ECB) ( email )
Kaiserstrasse 29
Frankfurt am Main, D-60311
Germany
HOME PAGE: http://www.ecb.int/home/html/index.en.html
João Tovar Jalles
University of Aberdeen - Business School ( email )
Dunbar Street
Aberdeen AB24 3QY, Scotland AB24 3QY
United Kingdom
HOME PAGE: http://www.abdn.ac.uk/business/staffmember.php?ID=pec227
European Central Bank, DG Economics - Fiscal Policies Division ( email )
Kaiserstrasse 29
Frankfurt am Main, D-60311
Germany
HOME PAGE: http://www.ecb.int
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