Government size and growth: Accounting for economic freedom and globalization
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We examine the relationship between government size and economic growth, controlling for economic freedom and globalization, and using Bayesian Averaging over Classical Estimates in a panel of rich countries.
Countries with big government have experienced above average increases in the KOF globalization index and in the Fraser institute’s Economic freedom index. To maintain comparability with earlier studies, we use two sample periods: 1970–1995 and 1970–2005. Government size robustly correlates negatively with growth. We also find some evidence that countries with big government can use economic openness and sound economic policies to mitigate negative effects of big government.
KeywordsGovernment size Growth Economic freedom Globalization Taxes
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