Working Paper No. 1119

Burying the Bumblebee Once and for All: Does Big Government Hurt Growth Less in High-Trust Countries?

Published: March 21, 2016Pages: 36Keywords: Trust; Economic growth; Government consumptionJEL-codes: H10; O11; P16; Z10

Burying the Bumblebee Once and for All: Does Big Government Hurt Growth Less in High-Trust Countries? Andreas Bergh and Christian Bjørnskov


High levels of social trust has been linked to both public sector size and long term economic growth, thereby helping to explain how some countries are able to combine high taxes and relatively high levels of economic growth. This paper examines if social trust as a background factor also insulates countries against negative effects of public sector size on growth, as government size and growth are found to be negatively associated in several recent studies. We note that the effect is theoretically ambiguous. In panel data from 66 countries across 40 years, we find little robust evidence of insulating effects. Instead we find robust evidence that high trust aggravates the crowding out effects of public sector size on private investments.

Andreas Bergh

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

Christian Bjørnskov

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Ph: +45 87 16 48 19
Mob: +45 20 12 03 84
chbj@econ.au.dk

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This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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