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
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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
A Convex Model of Equilibrium Growth
By Larry Jones and Rody Manuelli
-
Public Policy and Economic Growth: Developing Neoclassical Implications
By Robert G. King and Sergio T. Rebelo
-
A New Framework for Testing the Effect of Government Spending on Growth and Productivity
By Pär Hansson and Magnus Henrekson
-
Fiscal Policy and Economic Growth
By Eric M. Engen and Jonathan S. Skinner
-
Dynamic Behavior of Imperfectly Competitive Economies with Multiple Equilibria
-
Openness, Human Development, and Fiscal Policies: Effects on Economic Growth and Speed of Adjustment