Government size and growth: Accounting for economic freedom and globalization
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
Unable to display preview. Download preview PDF.
- Barro, R. J., & Lee, J.-W. (2000). International data on educational attainment: Updates and implications. CID Working Paper No. 42, April 2000. Google Scholar
- Castles, F. G. (2004). The future of the welfare state crisis myths and crisis realities. Oxford: Oxford University Press. Google Scholar
- de Haan, J., & Sturm, J. E. (2006). How to handle economic freedom: Reply to Lawson. Econ Journal Watch, 3, 407–411. Google Scholar
- Down, I. (2007). Revisiting the compensation hypothesis of welfare state development: Trade openness, country size and economic volatility. Paper presented at the annual meeting of the Midwest Political Science Association, Palmer House Hotel, Chicago, IL, 12 April 2008. Google Scholar
- Gwartney, J., Lawson, R., & Norton, S. (2008). Economic freedom of the world: 2008 annual report. Vancouver, BC, Canada: The Fraser Institute. Retrieved from www.freetheworld.com.
- Heckelman, J. C. (2000). Economic freedom and economic growth: A short-run causal investigation. Journal of Applied Economics, 3, 71–91. Google Scholar
- Iversen, T. (2005). Capitalism, democracy and welfare. New York: Cambridge University Press. Google Scholar
- Katzenstein, P. (1985). Small states in world markets: Industrial policy in Europe. Ithaca: Cornell University Press. Google Scholar
- Lindbeck, A. (1975). Business cycles, politics, and international economic dependence. Skandinaviska Enskilden Bank Quarterly Review, 2, 53–68. Google Scholar
- Lindert, P. H. (2004). Growing public. Cambridge: Cambridge University Press. Google Scholar
- Madrick, J. (2009). The case for big government. Princeton: Princeton University Press. Google Scholar
- Martin, H.-P., & Schumann, H. (1997). The global trap: Globalization and the assault on prosperity and democracy. London: Zed Books. Google Scholar
- Rodriguez, F., & Rodrik, D. (1999). Trade policy and economic growth: A skeptic’s guide to cross-national evidence. NBER Working Paper No. W7081. Google Scholar
- Skocpol, T. (1990). Bringing the state back in: Strategies of analysis in current research. In P. Evans, D. Rueschemeyer, & T. Skocpol (Eds.), Bringing the state back in (pp. 3–43). New York: Cambridge University Press. Google Scholar
- Thakur, S., Keen, M., Horváth, B., & Cerra, V. (2003). Sweden’s welfare state: Can the bumblebee keep flying? Washington: International Monetary Fund. Google Scholar