Growth Effects of Public Expenditure on the State and Local Level: Evidence from a Sample of Rich Governments

CREMA Working Paper No. 2004-16

20 Pages Posted: 7 Feb 2005

See all articles by Christoph A. Schaltegger

Christoph A. Schaltegger

University of St. Gallen - CREMA

Benno Torgler

Yale University - Yale Center for International and Area Studies

Abstract

There is a vast empirical literature investigating the relationship between government size and economic growth. But the empirical evidence of growth effects of public expenditure using cross-country regressions is still inconclusive. According to a number of authors this is not surprising since the negative relationship only applies for rich countries with a large public sector. Restricting their analysis on rich countries only they can show the predicted negative impact. Naturally, a selection of a sub-sample of rich countries is always somewhat arbitrary. Another possibility is to concentrate on governments within a rich country. However, only few studies investigate the effect of state and local spending on economic growth. This paper concentrates on the relationship between public expenditure and economic growth within a rich country using the full sample of state and local governments from Switzerland over the 1981-2001 period. The general finding is a fairly robust negative relationship between government size and economic growth. However, in contrast to public spending from operating budgets there is no significant impact on economic growth by expenditure from capital budgets.

Keywords: Economic Growth, State and Local Expenditure

JEL Classification: E620, H720, O230

Suggested Citation

Schaltegger, Christoph A. and Torgler, Benno, Growth Effects of Public Expenditure on the State and Local Level: Evidence from a Sample of Rich Governments. CREMA Working Paper No. 2004-16. Available at SSRN: https://ssrn.com/abstract=663685 or http://dx.doi.org/10.2139/ssrn.663685

Christoph A. Schaltegger (Contact Author)

University of St. Gallen - CREMA ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

Benno Torgler

Yale University - Yale Center for International and Area Studies ( email )

P.O. Box 208206
New Haven, CT 06520-8206
United States

HOME PAGE: http://www.crema-research.ch/fellowseiten/torgler.htm

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