Public Choice

, Volume 162, Issue 3–4, pp 307–328 | Cite as

Legitimacy and the cost of government

  • Niclas Berggren
  • Christian Bjørnskov
  • David Lipka
Article

Abstract

While previous research documents a negative relationship between government size and economic growth, suggesting an economic cost of big government, a given government size generally affects growth differently in different countries. As a possible explanation of this differential effect, we explore whether government legitimacy (measured by satisfaction with the way democracy works) influences how a certain government size affects growth. On the positive side, a government perceived as legitimate may “get away” with being big since legitimacy can affect behavioral response to, and therefore the economic growth cost of, taxation and government expenditures. On the negative side, perceived legitimacy may make voters less prone to acquire information, which in turn facilitates interest-group oriented or populist policies that harm growth. A panel-data analysis of up to 30 developed countries, in which two different measures of the size of government are interacted with government legitimacy, reveals that perceived legitimacy exacerbates a negative growth effect of government size in the long run. This could be interpreted as governments taking advantage of being regarded as legitimate in order to secure short-term support at a long-term cost to the economy.

Keywords

Legitimacy Economic growth Size of government Confidence Trust 

JEL Classification

E62 H11 H20 O43 Z13 

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  • Niclas Berggren
    • 1
    • 2
  • Christian Bjørnskov
    • 1
    • 3
  • David Lipka
    • 4
    • 5
  1. 1.Research Institute of Industrial Economics (IFN)StockholmSweden
  2. 2.Department of Institutional, Environmental and Experimental EconomicsUniversity of EconomicsPragueCzech Republic
  3. 3.Department of Economics and BusinessAarhus UniversityAarhus VDenmark
  4. 4.School of International Relations and DiplomacyAnglo-American UniversityPragueCzech Republic
  5. 5.Jan Evangelista Purkyne UniversityÚstí nad LabemCzech Republic

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