Working Paper Series
Stefan Fölster and Magnus Henrekson
Growth and the Public Sector: A Critique of the Critics
Abstract: In a recent review article Jonas Agell, Thomas Lindh and
Henry Ohlsson (1997) claim that theoretical and empirical evidence does not
allow any conclusion on whether there is a relationship between the rate of
economic growth and the size of the public sector. They illustrate their
conclusion with simple cross-country regressions where the relation between
growth and public expenditure tilts from negative to positive when control
variables are introduced. In our article we argue that Agell, Lindh and
Ohlsson base their conclusion on empirical studies, and on their own
regressions, without evaluating the econometric problems that arize. We
extend Agell et al.'s review in order to highlight some of these problems.
Furthermore, we present evidence showing that once a number of econometric
issues are dealt with the relationship between growth and public
expenditure may be more robustly negative than it first appears.
Keywords: Economic growth; Government expenditure; Public sector; Taxation; Cross-country regressions.; (follow links to similar papers)
JEL-Codes: E62; H20; H50; O23; O40; (follow links to similar papers)
23 pages, December 1, 1997, Revised June 10, 1998
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- This paper is published as:
Fölster, Stefan and Magnus Henrekson, (1999), 'Growth and the Public Sector: A Critique of the Critics', European Journal of Political Economy, Vol. 15, No. 2, pages 22
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