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Working Paper No. 130. Government Size and Growth

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Andreas Bergh, Ekonomisk frihet, Företagandets villkor, Globalisering, Martin Karlsson, Skatter, Tillväxt
Working Paper No. 130.
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Abstract

Several recent studies have found a negative relation between government size and economic growth in rich countries. Since countries with big government have experienced above average improvements in both the Economic freedom index and the KOF globalization index, we argue that existing studies suffer from an omitted variable problem. Using Bayesian Averaging over Classical Estimates (BACE) in a panel of OECD countries, we show that the negative effect from government size is very robust and may have been underestimated in previous studies. The dataset is an updated and extended version of the data used by Fölster and Henrekson (2001), covering the period 1970-1995. We find clear evidence that globalization has a positive effect on growth, but find no effect of economic freedom. Finally, we find that the negative effect of government size decreases substantially in size but remains significant when we add the period 1996-2005 to the sample. Our results support the idea that countries with big government can use institutional quality such as economic freedom and globalization to mitigate negative growth effects of taxes and public expenditure.

Related content: Government size and growth

Bergh, A, & Karlsson, M. (2009) Government Size and Growth: Accounting for Economic Freedom and Globalization. Ratio Working Paper No. 130.

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Government size and growth
Article (with peer review)Publication
Bergh, A. & Karlsson, M.
Publication year

2010

Published in
Abstract

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.

Related content: Working Paper No. 130

Government size and growth
Artikel (med peer review)Publication
Bergh, A. & Karlsson, M.
Publication year

2010

Published in
Abstract

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.

Related content: Working Paper No. 130

Ratio Working Paper No. 349: Industrial conflict in essential services in a new era – Swedish rules in a comparative perspective
Working paperPublication
Karlson, N.
Publication year

2021

Published in

Ratio Working Paper

Abstract

This paper examines whether the Swedish regulatory system of dealing with industrial conflicts that affect essential services need an update or reform. Are the existing rules effective in a world where many essential services are upheld by many interdependent agents in complex systems where every single node becomes critical for the functioning of the system, and where the essential service activities could be either private or public? A comparative study is conducted with the corresponding regulatory systems of the United Kingdom, Germany, and Denmark.
The conclusion is that Sweden is a special case. The Swedish protection against and readiness in dealing with societally harmful industrial conflicts in essential services is weaker than in the countries of comparison. Just as in relation to other threats to essential services, it is not sustainable to claim that just because such a threat is not currently present, there would be no need for preparedness.
There are many alternative ways to handle this. Desirable methods should both prevent harmful conflicts from erupting and end conflicts that have grown harmful to society at a later stage. The labour market organisations should have a mutual interest in reforming the rules.

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