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Growth effects of government expenditure and taxation in rich countries: A comment
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics.ORCID iD: 0000-0001-8826-0410
2006 (English)In: European Economic Review, ISSN 0014-2921, E-ISSN 1873-572X, Vol. 50, no 1, 211-218 p.Article in journal (Refereed) Published
Abstract [en]

Fölster and Henrekson (European Economic Review 45 (2001), 1501–1520) argue that “...the more the econometric problems that are addressed, the more robust the relationship between government size and economic growth appears”. But in failing to control for simultaneity and in ignoring issues of sample-selection bias, the regressions reported by Fölster/Henrekson are flawed. Using theoretically valid instruments, we find that the estimated partial correlation between size of the public sector and economic growth is statistically insignificant and highly unstable across specifications. Moreover, since instruments are weak, all hypothesis tests are unreliable. We conclude that cross-country growth regressions are unlikely to come up with a reliable answer to the question of the growth effects of government spending and taxation.

Place, publisher, year, edition, pages
2006. Vol. 50, no 1, 211-218 p.
Keyword [en]
economic growth, public sector, cross-country regressions, panel regressions
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Research subject
URN: urn:nbn:se:uu:diva-80763DOI: 10.1016/j.euroecorev.2004.11.006OAI: oai:DiVA.org:uu-80763DiVA: diva2:108677
Available from: 2006-05-23 Created: 2006-05-23 Last updated: 2013-07-09

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Publisher's full texthttp://econpapers.repec.org/article/eeeeecrev/v_3A50_3Ay_3A2006_3Ai_3A1_3Ap_3A211-218.htm

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