Research Discussion Papers, Bank of Finland
Government size and output volatility: is there a relationship?
Abstract: This paper provides some further tests for the proposition
that a larger public sector leads to smaller out-put volatility. Both Gali
and Fatas & Mihov have provided some evidence which appears to support this
proposition. Their evidence is, however, based on a relatively small sample
of countries. In this study, we go beyond the OECD sample and focus on a
much larger World Bank data set covering up to 208 countries for the period
1960–2002. We also seek to utilise some time series aspects of the material
by using pooled cross-section time series data. Tests with different models
and measures clearly indicate that the original results are not very robust
and the relationship between government size and output volatility is
either nonexistent or very weak at best.
Keywords: government; fiscal policy; automatic stabilisers; (follow links to similar papers)
JEL-Codes: E32; E62; H30; (follow links to similar papers)
28 pages, May 11, 2005
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