Government Size and Intersectoral Income Fluctuation: An International Panel Analysis

36 Pages Posted: 16 May 2007

See all articles by Daehaeng Kim

Daehaeng Kim

International Monetary Fund (IMF)

Chul-In Lee

Konkuk University - Department of Economics

Date Written: April 2007

Abstract

Using the between-sector variation in income as a new measure of economic uncertainty, this paper proposes simple models and supportive empirical evidence for the causal relations between economic uncertainty and government size in the open economy setting. Key empirical findings include: (1) a larger government reduces economic uncertainty, and, at the same time, (2) an economy facing higher uncertainty has a larger government. However, (3) the government tends to resort to redistributive policies to reduce the uncertainty, while (4) government direct spending is also an effective option for the purpose. The study also finds that (5) cross-sectional measure of economic uncertainty tends to rise when a country becomes more open to international trade.

Keywords: Income, Economic stabilization, Government expenditures, Trade policy, Economic models

Suggested Citation

Kim, Daehaeng and Lee, Chul-In, Government Size and Intersectoral Income Fluctuation: An International Panel Analysis (April 2007). IMF Working Papers, Vol. , pp. 1-34, 2007. Available at SSRN: https://ssrn.com/abstract=986821

Daehaeng Kim (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Chul-In Lee

Konkuk University - Department of Economics ( email )

1 Hwayang-dong
Kwangjin-gu
Seoul, 143-701
Korea

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