Growth effects of government expenditure and taxation in rich countries

A number of cross-country comparisons do not find a robust negative relatio nship between government size and economic growth, In part, this may reflec t the prediction in economic theory that a negative relationship should exi st primarily for rich countries with large public sectors. In this paper an econometric panel study is conducted on a sample of rich countries coverin g the 1970-1995 period. Extended extreme bounds analyses are reported based on a regression model that tackles a number of econometric issues. Our gen eral finding is that the more the econometric problems are addressed, the m ore robust the relationship between government size and economic growth app ears. Our most complete specifications are robust even according to the str ingent extreme bounds criterion. (C) 2001 Elsevier Science B.V. All rights reserved.