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Private sector shrinkage and the growth of industrialized economies: Reply

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  • Michael Marlow

Abstract

Further tests and thoughts on the OECD data lead me to conclude that, if anything, my 1986 paper underestimated the magnitude of the inverse relation between economic growth and government size. If one takes the nominal-based measure of government scale, as advised by Saunders, the significance levels, coefficient magnitudes and goodness of fits improve over what I found with my initial investigation. I would suggest that Saunders reconsider his reluctance to believe that the size of the public sector is unrelated to economic growth in OECD countries over this time period. One additional thought appears relevant to the current policy debate concerning budget deficits and economic performance within the major industrialized economies. The empirical work displayed here and in my 1986 paper suggests serious problems associated with the various proposals urging governments to raise taxes and/or ‘ease’ fiscal policy. Elsewhere, I have suggested that available empirical evidence implies that plans to increase taxes as a way out of budget deficits are plans that carry the potential for raising government spending and possibly future deficits as well. Coupled with the evidence presented here, we should also recognize the potential of tax increases to raise the level of government participation in a country and, accordingly, exert inverse influences on its future economic performance as well. As suggested in my 1986 paper, the empirical evidence may suggest the following irony: While political participants may crave larger and larger non-market resource allocations, their future ability to satisfy that craving may very well be severely constrained by the satisfaction of that same appetite. Copyright Kluwer Academic Publishers 1988

Suggested Citation

  • Michael Marlow, 1988. "Private sector shrinkage and the growth of industrialized economies: Reply," Public Choice, Springer, vol. 58(3), pages 285-294, September.
  • Handle: RePEc:kap:pubcho:v:58:y:1988:i:3:p:285-294
    DOI: 10.1007/BF00155674
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    References listed on IDEAS

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    1. Beck, Morris, 1979. "Public Sector Growth: A Real Perspective," Public Finance = Finances publiques, , vol. 34(3), pages 313-356.
    2. Peter Saunders, 1988. "Private sector shrinkage and the growth of industrialized economies: Comment," Public Choice, Springer, vol. 58(3), pages 277-284, September.
    3. Beck, Morris, 1985. "Public Expenditure, Relative Prices, and Resource Allocation," Public Finance = Finances publiques, , vol. 40(1), pages 17-34.
    4. Cameron, David R., 1978. "The Expansion of the Public Economy: A Comparative Analysis," American Political Science Review, Cambridge University Press, vol. 72(4), pages 1243-1261, December.
    5. Gould, Frank, 1983. "The Development of Public Expenditures in Western, Industrialised Countries: A Comparative Analysis," Public Finance = Finances publiques, , vol. 38(1), pages 38-69.
    6. Saunders, Peter, 1985. "Public Expenditure and Economic Performance in OECD Countries," Journal of Public Policy, Cambridge University Press, vol. 5(1), pages 1-21, February.
    7. Michael Marlow, 1986. "Private sector shrinkage and the growth of industrialized economies," Public Choice, Springer, vol. 49(2), pages 143-154, January.
    8. Erich Weede, 1984. "Democracy, creeping socialism, and ideological socialism in rent-seeking societies," Public Choice, Springer, vol. 44(2), pages 349-366, January.
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