Growth effects of government expenditure and taxation in rich countries: A reply

Fölster, Stefan; Henrekson, Magnus

doi:10.1016/j.euroecorev.2005.02.007

Cited by 19 publications

(11 citation statements)

References 13 publications

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“…We will return to these studies below, but first some words on the two studies that deviate in their results. Agell's et al (2006) replication and critique of Fölster and Henrekson (2001) led to a provocative rejoinder by Fölster and Henrekson (2006). The conclusion to be drawn from the debate is that the correlation may be significantly less robust when only OECD-countries are investigated, a point that deserves to be taken seriously.…”

Section: Fixed Effects Panel Studiesmentioning

confidence: 99%

Government Size and Growth: A Survey and Interpretation of the Evidence

Bergh

Henrekson

2011

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: The literature on the relationship between the size of government and economic growth is full of seemingly contradictory findings. This conflict is largely explained by variations in definitions and the countries studied. An alternative approach -of limiting the focus to studies of the relationship in rich countries, measuring government size as total taxes or total expenditure relative to GDP and relying on panel data estimations with variation over time -reveals a more consistent picture: The most recent studies find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate. We discuss efforts to make sense of this correlation, and note several pitfalls involved in giving it a causal interpretation. Against this background, we discuss two explanations of why several countries with high taxes seem able to enjoy above average growth: One hypothesis is that countries with higher social trust levels are able to develop larger government sectors without harming the economy. Another explanation is that countries with large governments compensate for high taxes and spending by implementing market-friendly policies in other areas. Both explanations are supported by ongoing research. Terms of use: Documents inJEL Classification: E62; H11; H20; O23; O43.

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Section: Fixed Effects Panel Studiesmentioning

confidence: 99%

Government Size and Growth: A Survey and Interpretation of the Evidence

Bergh

Henrekson

2011

SSRN Journal

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“…The ratio of government expenditure to GDP (GOV) enters the model as a policy variable, since an increase in government expenditure, especially on productive activities such as road construction, and provision of electricity, can boost economic growth (see Easterly and Rebelo, 1993;Hansson and Henrekson, 1994;Fölster and Henrekson, 2006;Afonso and Furceri, 2010;Bergh and Karlsson, 2010). Government expenditure is also included in our model to complete the components of the GDP.…”

Section: Government Expenditure (Gov)mentioning

confidence: 99%

The links between economic growth and tax revenue in Ghana: an empirical investigation

Takumah

Iyke

2017

IJSE

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This paper explores the causal influence of tax revenue on economic growth in Ghana. The causality analysis builds on a multivariate setup, allowing for key control variables to intermediate the nexus between tax revenue and economic growth. This enables the paper to overcome variable omission bias, allowing for efficient estimates of the test statistics of the Granger causality. In addition, the paper employs the Toda-Yamamoto test instead of the conventional Granger causality test to avoid pre-testing bias. Using a quarterly dataset which spans the period 1986Q1-2014Q4, we find strong evidence of unidirectional causal flow from tax revenue to economic growth in Ghana. This finding agrees with the existing finding that taxation can influence economic growth. The implication for policy is that the tax scope of the country should be expanded in order to increase the revenue from taxation.

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“…Tatsächlich gibt es eine ganze Reihe von Studien, die zu unterschiedlichen Ergebnissen kamen, wobei freilich meistens ein negativer Zusammenhang festgestellt wurde . Wie beispielsweise in den Diskussionen zwischen Fölster und Henrekson (, , ) auf der einen und Agell, Lindh und Ohlson (, ) bzw. Agell, Ohlson und Thoursie () auf der anderen Seite deutlich wurde, ist das Problem vieler dieser Arbeiten, dass die Simultaneität zwischen Staatsquote und Wirtschaftswachstum nicht oder zumindest nicht in ausreichendem Maße berücksichtigt wird.…”

Section: Der Zusammenhang Zwischen Staatsquote Und Wirtschaftswachstumunclassified

Zur Rolle der Ökonometrie in der wissenschaftlichen Politikberatung

Kirchgäßner

2013

Perspektiven Der Wirtschaftspolitik

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Because economic theory alone does in many situations not provide unambiguous policy advice, most of the time empirical analyses are needed in addition. Thus, today econometric analyses are often parts of reports for political institutions or courts. However, it is not unusual that reports with contradicting evidence are presented by different groups or parties. Using the relation between government size and economic growth as an example, it is shown how such contradicting results are possible even if all scientists involved behave sincerely and adhere to the rules of scientific research. Our second example, studies investigating whether the death penalty serves as a deterrent to homicide, shows that the results of empirical analyses might to a large extent depend on a priori convictions of the scientists. Thus, the process of scientific policy advice has to be organised in a way so that – similar to the genuinely scientific discourse – open discussion and criticisms of methods and results are possible. In order to disclose possible conflicts of interests, this demand transparency of the whole process and, in particular for empirical analyses, that data and programmes are made available for re‐estimations.

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Growth effects of government expenditure and taxation in rich countries: A reply

Cited by 19 publications

References 13 publications

Government Size and Growth: A Survey and Interpretation of the Evidence

Government Size and Growth: A Survey and Interpretation of the Evidence

The links between economic growth and tax revenue in Ghana: an empirical investigation

Zur Rolle der Ökonometrie in der wissenschaftlichen Politikberatung

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