Government Size and Growth: A Survey and Interpretation of the Evidence
(2011) In Journal of Economic Surveys 25(5). p.872-897- Abstract
- The literature on the relationship between the size of government and economic growth is full of seemingly contradictory findings. This conflict is largely explained by variations in definitions and the countries studied. An alternative approach – of limiting the focus to studies of the relationship in rich countries, measuring government size as total taxes or total expenditure relative to GDP and relying on panel data estimations with variation over time – reveals a more consistent picture: The most recent studies find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate. We discuss efforts to make sense of this correlation, and note... (More)
- The literature on the relationship between the size of government and economic growth is full of seemingly contradictory findings. This conflict is largely explained by variations in definitions and the countries studied. An alternative approach – of limiting the focus to studies of the relationship in rich countries, measuring government size as total taxes or total expenditure relative to GDP and relying on panel data estimations with variation over time – reveals a more consistent picture: The most recent studies find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate. We discuss efforts to make sense of this correlation, and note several pitfalls involved in giving it a causal interpretation. Against this background, we discuss two explanations of why several countries with high taxes seem able to enjoy above average growth: One hypothesis is that countries with higher social trust levels are able to develop larger government sectors without harming the economy. Another explanation is that countries with large governments compensate for high taxes and spending by implementing market-friendly policies in other areas. Both explanations are supported by ongoing research. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/1939384
- author
- Bergh, Andreas LU and Henrekson, Magnus
- organization
- publishing date
- 2011
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- Government size, growth
- in
- Journal of Economic Surveys
- volume
- 25
- issue
- 5
- pages
- 872 - 897
- publisher
- John Wiley & Sons Inc.
- external identifiers
-
- wos:000296909500003
- scopus:80054686819
- ISSN
- 0950-0804
- DOI
- 10.1111/j.1467-6419.2011.00697.x
- language
- English
- LU publication?
- yes
- id
- 222f73ad-e2c6-45d6-8515-8f3b8de8186e (old id 1939384)
- date added to LUP
- 2016-04-01 14:00:40
- date last changed
- 2022-04-22 00:54:58
@article{222f73ad-e2c6-45d6-8515-8f3b8de8186e,
abstract = {{The literature on the relationship between the size of government and economic growth is full of seemingly contradictory findings. This conflict is largely explained by variations in definitions and the countries studied. An alternative approach – of limiting the focus to studies of the relationship in rich countries, measuring government size as total taxes or total expenditure relative to GDP and relying on panel data estimations with variation over time – reveals a more consistent picture: The most recent studies find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate. We discuss efforts to make sense of this correlation, and note several pitfalls involved in giving it a causal interpretation. Against this background, we discuss two explanations of why several countries with high taxes seem able to enjoy above average growth: One hypothesis is that countries with higher social trust levels are able to develop larger government sectors without harming the economy. Another explanation is that countries with large governments compensate for high taxes and spending by implementing market-friendly policies in other areas. Both explanations are supported by ongoing research.}},
author = {{Bergh, Andreas and Henrekson, Magnus}},
issn = {{0950-0804}},
keywords = {{Government size; growth}},
language = {{eng}},
number = {{5}},
pages = {{872--897}},
publisher = {{John Wiley & Sons Inc.}},
series = {{Journal of Economic Surveys}},
title = {{Government Size and Growth: A Survey and Interpretation of the Evidence}},
url = {{http://dx.doi.org/10.1111/j.1467-6419.2011.00697.x}},
doi = {{10.1111/j.1467-6419.2011.00697.x}},
volume = {{25}},
year = {{2011}},
}