Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 275: Growth and Government: Is there a Difference between Developed and Developing Countries?

Tove Strauss
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Tove Strauss: Dept. of Economics, Stockholm School of Economics, Postal: P.O. Box 6501, SE-113 83 Stockholm, Sweden

Abstract: We examine the role of government for growth in 64 industrialized and developing countries, considering both expenditure and financing aspects of government. Recognizing that there are differences between the two country groups leading to severe heteroskedasticity, we use weighted least squared estimations. The general conclusion is that the means of financing matters more for growth than do government spending. We find that seigniorage and budget surplus are important for growth in LDCs but not in industrialized countries, while capital revenue matters only in the latter group. Moreover, the level of indebtedness is a negative determinant of growth in LDCs.

Keywords: Growth; government; public expenditure; public financing.

JEL-codes: C21; E62; H63; O40

35 pages, October 23, 1998

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