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Do Smaller Governments Raise the Level or Growth of Output? A Review of Recent Evidence

Norman Gemmell, Victoria University of Wellington & Joey Au, The Treasury, 2013-08-12

Theoretical developments, improved methodologies and more extensive data have
helped generate a dramatic increase in the literature testing for the impact of government size and fiscal policy on economic growth in recent years. We review a range of the more recent evidence and examine (1) the consistency or robustness of the results; (2) how these results differ from the earlier literature and (3) their usefulness as a guide to policy reform in practice. We find that the last decade has produced more robust evidence and more plausible orders of magnitude on the impact of fiscal policy on growth. However, the value of this evidence remains limited as a basis for quantifying
macro-economic responses to fiscal policy reform in practice.

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volume:64, Issue 2
JEL:H10, H30, O40, O50
keywords:economic_growth fiscal_policy government_expenditure taxation

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