Growth Effects of Government Expenditure and Taxation in Rich Countries. A Reply

Agell et al. (2005) criticise our earlier findings (Fölster and Henrekson 2001) of a robust negative relationship between government size and economic growth for an extended sample of rich countries. In this short paper it is argued that their critique is unfounded. Most importantly, the critique does not deal with the main result of the original study, namely that the most complete specifications for assessing the relationship between government expenditure and growth in rich countries are robust even according to stringent extreme bounds criteria.