Crises and Government: Some Empirical Evidence
Contemporary Economic Policy (Forthcoming)
83 Pages Posted: 22 Aug 2013 Last revised: 31 Jul 2015
Date Written: July 2015
We examine a panel of 70 countries during 1966-2010 and utilize Reinhart and Rogoff crisis dates to estimate the effects of crises on the size and scope of government over both 5-year and 10-year horizons. We also estimate cross-section regressions using 40-year (1970-2010) changes in government variables. In general, the estimated effects of crises on government size/scope are statistically insignificant. We report reasonably robust evidence that inflation and currency crises lead to decreases in the extent of government regulations throughout an economy over a 10-year horizon. Also, over the 40-year period, countries that spent more years in crisis are associated with weaker legal systems and property rights. The size and scope of government appears to be persistent to the extent that even crisis episodes fail to leave a significant mark upon them. A notable exception may be that, over 40-year periods, countries that spend more years in crisis are associated with weaker legal systems and property rights.
Keywords: sovereign debt crises, banking crises, currency crises, inflation crises, institutional quality, size of government, ratchet effect
JEL Classification: E02, O11, O43
Suggested Citation: Suggested Citation