2010-

Government Size and Implications for Economic Growth

Author(s): Andreas Bergh and Magnus Henrekson
Year: 2010Pages: 74Publisher: AEI PressCity: Washington, D.C
ISBN: 978-0-8447-4353-0

Government Size and Implications for Economic Growth Andreas Bergh and Magnus Henrekson

In this comprehensive evaluation of existing economic research, Andreas Bergh and Magnus Henrekson find that in wealthy countries, where government size is measured as total taxes or total expenditure relative to gross domestic product (GDP), there is a negative correlation between government size and economic growth

As economists and policymakers strive to understand the causes of the global financial crisis, pinpointing the relationship between government size and economic growth is crucial. In this comprehensive evaluation of existing economic research, Andreas Bergh and Magnus Henrekson find that in wealthy countries, where government size is measured as total taxes or total expenditure relative to gross domestic product (GDP), there is a negative correlation between government size and economic growth--where government size increases by 10 percentage points, annual growth rates decrease by 0.5 to 1 percent.

Bergh and Henrekson stress that statistical correlations, even when highly significant, are not law. Some countries with high taxes enjoy above-average growth, and some countries with small governments have stagnant economies. The Scandinavian welfare states, for example, have enjoyed steady growth over the last decade despite their large governments. However, these nations compensate for high taxes by employing market-friendly policies in other areas, such as trade openness and inflation control.

Government Size and Implications for Economic Growth concludes that, in every case, economic freedom is a crucial determinant of economic growth--suggesting that government intervention in the marketplace may be the wrong approach to solving the economic crisis.


Reference:

Bergh, Andreas and Magnus Henrekson (2010), Government Size and Implications for Economic Growth. Washington, DC: AEI Press.

Andreas Bergh

Contact

Mob: 070 779 0734
andreas.bergh@ifn.se

Magnus Henrekson

Contact

Ph: +46 (0)8 665 4502
magnus.henrekson@ifn.se

Sick of Inequality?

An Introduction to the Relationship between Inequality and Health

Sick of Inequality.jpg

In this book Andreas Bergh, Therese Nilsson, IFN and Lund University, and Daniel Waldenström, IFN and Paris School of Economics, France, review the latest research on the relationship between inequality and health. What does inequality mean for our health? Does increasing income inequality affect outcomes such as obesity, life expectancy and subjective well-being?

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