Public sector bureaucracies and economic growth

Abstract

Public sector bureaucracies are key players in advanced economies, as in the case of European Union countries, for the smooth functioning of the roles assigned to the governments (to provide welfare state services and benefits, public infrastructures, and to design the legal and economic institutional framework). From this perspective, a proper functioning of bureaucratic bodies is crucial for potential growth. Thus, cross-country differences in the quality of bureaucracies can explain differences in economic growth among them. Accordingly, the operation of self-interested bureaucracies can lead to inappropriate fiscal policies, regulatory capture, and labor market misallocation, damaging incentives and causing large efficiency costs. The aim of this paper is twofold. Firstly, we review the extant literature, focusing on the main channels of the bureaucracy-growth relationship. And secondly, we provide an empirical exercise that illustrates the links between bureaucratic/institutional quality and economic growth.