Sunday, September 9, 2018

An increase in government size by 10 percentage points is associated with a 0.5 to 1 percentage point lower annual growth rate

Too complex a set of systems to have great empirical faith, but the findings are consistent with Classical Liberal theory. From Government Size and Growth: A Rejoinder by Andreas Bergh and Magnus Henrekson. From the Abstract:
In our 2011 survey of the literature in the Journal of Economic Surveys on the effect of government size on economic growth in wealthy countries we find a relatively consistent pattern: an increase in government size by 10 percentage points is associated with a 0.5 to 1 percentage point lower annual growth rate. This conclusion is questioned by Colombier (2014). In this rejoinder we present a rebuttal of Colombier’s argument based on a detailed scrutiny of his own statistical evidence and regression results. Furthermore, we note that several new papers that have appeared since our original article was published give support to our main conclusion.
The public wants more economic growth and the establishment political parties want larger government. You can see why there is such conflict.

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