Abstract
Economic theory suggests that government contributes to total economic growth in two ways: positively, through the provision of Pigovian public goods and services; and negatively, through the inefficient provision of such goods and services and the distortionary effects attendant with their provision. This paper develops a model that differentiates the two effects and empirically tests the model for a sample of forty-eight countries. Evidence suggests that the net effect of government on growth is positive, but that the negative effects are not insignificant. Though growth in government output contributes to total economic growth, at the margin this is approximately offset by distortionary effects attendant with increases in the relative size of government.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Beggs, J.J. (1988). Diagnostic testing in applied econometrics. Economic Record 64: 81–101.
Buchanan, J.M. and Tullock, G. (1962). The calculus of consent. Ann Arbor: The University of Michigan Press.
Downs, A. (1957). An economic theory of democracy. New York: Harper and Row.
Feder, G. (1983). On exports and economic growth. Journal of Development Economics 12: 59–73.
Grossman, P.J. (1988a). Government and economic growth: A non-linear relationship. Public Choice 56 (2): 193–200.
Grossman, P.J. (1988b). Growth in government and economic growth: The Australian experience. Australian Economic Papers 27 (June): 33–43.
International Monetary Fund. (1986). International financial statistics yearbook. Washington, DC: International Monetary Fund.
Krueger, A.O. (1974). The political economy of the rent-seeking society. American Economic Review 64: 291–303.
Landau, D. (1983). Government expenditure and economic growth: A cross-country study. Southern Economic Journal 49: 783–792.
Maddala, G.S. (1977). Econometrics. New York: McGraw Hill.
Mueller, D.C. (1979). Public Choice. Cambridge: Cambridge University Press.
Nakamura, A. and Nakamura, M. (1981). On the relationship among several specification error tests presented by Durbin, Wu and Hausman. Econometrica 49: 1583–1588.
Niskanen, W.A., Jr. (1971). Bureaucracy and representative government. Chicago: Aldine.
Olson, M. (1982). The rise and decline of nations: Economic growth, stagflation, and social rigidities. New Haven: Yale University Press.
Posner, R.A. (1975). The social costs of monopoly and regulation. Journal of Political Economy 83: 807–828.
Ram, R. (1986). Government size and economic growth: A new framework and some evidence from cross-section and time-series data. American Economic Review 76: 191–203.
Saunders, P. (1985). Public expenditure and economic performance in OECD countries. Journal of Public Policy 5: 1–21.
Stigler, G.C. (1971). The theory of economic regulation. Bell Journal of Economics and Management Science 2: 3–21.
Summers, R. and Heston, A. (1984). Improved international comparisons of real product and its composition: 1950–80. Review of Income and Wealth 30: 207–262.
Tullock, G. (1959). Some problems with majority voting. Journal of Political Economy 67: 571–579.
World Bank. (1983). World tables, 3rd ed. Baltimore: John Hopkins University Press.
Author information
Authors and Affiliations
Additional information
This paper has benefited from the suggestions of Cliff Walsh. I would like to thank Filas Carbone for her assistance in collecting the data. Most of the work for this paper was undertaken while the author was a visiting lecturer at the University of Adelaide and funding provided by a University of Adelaide, University Research Grant is gratefully acknowledged.
Rights and permissions
About this article
Cite this article
Grossman, P.J. Government and growth: Cross-sectional evidence. Public Choice 65, 217–227 (1990). https://doi.org/10.1007/BF00204946
Issue Date:
DOI: https://doi.org/10.1007/BF00204946