SSE/EFI Working Paper Series in Economics and Finance
No 391:
Growth Effects of Government Expenditure and Taxation in Rich Countries
Stefan Fölster ()
and Magnus Henrekson ()
Abstract: A number of cross-country comparisons do not find a robust
negative relationship between government size and economic growth. In part
this may reflect the prediction in economic theory that a negative
relationship should exist primarily for rich countries with large public
sectors. In this paper an econometric panel study is conducted on a sample
of rich countries covering the 1970-95 period. Extended extreme bounds
analyses are reported based on a regression model that tackles a number of
econometric issues. Our general finding is that the more econometric
problems are addressed, the more robust the relationship between government
size and economic growth appears. Our most complete specifications are
robust even according to the stringent extreme bounds criterion.
Keywords: Economic growth; Extreme bounds analysis; Fiscal Policy; Government expenditure; Public sector; Taxation; Cross-country regressions; Panel regressions; Robustness test.; (follow links to similar papers)
JEL-Codes: E62; H20; H50; O23; O40; (follow links to similar papers)
18 pages, June 20, 2000
Published in the European Economic Review, 2001
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- This paper is published as:
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Fölster, Stefan and Magnus Henrekson, (2001), 'Growth Effects of Government Expenditure and Taxation in Rich Countries', European Economic Review, Vol. 45, August, No. 8, pages 1501-1520
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