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Tracing the Link between Government Size and Growth: The Role of Public Sector Quality

Author

Listed:
  • Daniel Oto-Peralías

    (Pablo de Olavide University)

  • Diego Romero-Avila

    (Pablo de Olavide University)

Abstract

This paper shows evidence of strong heterogeneity in the relationship between government size and growth, depending on the quality of public sector institutions. Focusing on a wide sample of developed and developing countries over the period 1981-2005, we find that government size reduces growth when bureaucracy quality is low, whereas no significant effect is observed for sufficiently high levels of bureaucracy quality. The results hold both in cross-section and panel data analyses and are robust to a large number of robustness checks. These findings have important implications for assessing the role of government size in economic growth.

Suggested Citation

  • Daniel Oto-Peralías & Diego Romero-Avila, 2012. "Tracing the Link between Government Size and Growth: The Role of Public Sector Quality," Working Papers 2012.3, International Network for Economic Research - INFER.
    • Handle: RePEc:inf:wpaper:2012.3
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