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Varieties of capitalism, governance and government spending: A cross-section analysis

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  • Ahrens, Joachim
  • Schweickert, Rainer
  • Zenker, Juliane

Abstract

We argue that the literature on government size suffers from neglecting the role of governance both as a driving and a limiting factor for government spending. Cross-country evidence for a sample of 126 developed and developing countries averaging data for the period 2003-07 reveals that better governance allows for higher spending. However, on the demand side, more open countries are likely to spend more in cases of minor quality of governance only. In this respect, government spending compensates ineffective institutional structures. More generally, a preference for a coordinated (continental European type) market economy leads to higher levels of spending if accompanied by better governance. While most developing countries share these preferences, Latin American countries seem to prefer a lower level of spending as in liberal (anglo-saxon) market economies.
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  • Ahrens, Joachim & Schweickert, Rainer & Zenker, Juliane, 2011. "Varieties of capitalism, governance and government spending: A cross-section analysis," PFH Forschungspapiere/Research Papers 2011/01, PFH Private University of Applied Sciences, Göttingen.
    • Handle: RePEc:zbw:pfhrps:201101
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    JEL classification:

    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • P10 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - General
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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