Legitimacy and the Cost of Government

31 Pages Posted: 1 Nov 2014

See all articles by Niclas Berggren

Niclas Berggren

Research Institute of Industrial Economics (IFN); University of Economics, Prague - Faculty of Economics and Public Administration

Christian Bjørnskov

Aarhus University - Department of Economics and Business; Research Institute of Industrial Economics (IFN); Center for Political Studies; Institute for Corruption Studies

David Lipka

Anglo-American University; International Centre for Economic Research (ICER)

Date Written: October 30, 2014

Abstract

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 perceived government legitimacy (measured by satisfaction with the way democracy works) influences how a certain government size affects growth. On the positive side, a legitimate government may “get away” with being big since legitimacy can affect people’s behavioral response to, and therefore the economic growth cost of, taxation and government expenditures. On the negative side, 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 legitimacy exacerbates a negative growth effect of government size in the long run. This could be interpreted as governments taking advantage of legitimacy in order to secure short-term support at a long-term cost to the economy.

Keywords: Legitimacy, Economic growth, Size of government, Confidence, Trust

JEL Classification: E62, H11, H20, O43, Z13

Suggested Citation

Berggren, Niclas and Bjørnskov, Christian and Lipka, David, Legitimacy and the Cost of Government (October 30, 2014). IFN Working Paper No. 1045, Available at SSRN: https://ssrn.com/abstract=2516774

Niclas Berggren (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se/nb

University of Economics, Prague - Faculty of Economics and Public Administration ( email )

nám. W. Churchilla 4
Praha, 130 67
Czech Republic

Christian Bjørnskov

Aarhus University - Department of Economics and Business ( email )

Fuglesangs Allé 4
Aarhus V, DK-8210
Denmark

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Center for Political Studies

Landgreven 3
Copenhagen K, DK-1301
Denmark

Institute for Corruption Studies

Stevenson Hall 425
Normal, IL 61790-4200
United States

David Lipka

Anglo-American University ( email )

Lazenska 4
11800 Praha 1
Prague 1, 11800
Czech Republic

International Centre for Economic Research (ICER) ( email )

Villa Gualino
Viale Settimio Severo, 63
10133 Torino
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
35
Abstract Views
581
PlumX Metrics