Macroeconomic risk and the (de)stabilizing role of government size

Carmignani, Fabrizio, Colombo, Emilio and Tirelli, Patrizio (2011) Macroeconomic risk and the (de)stabilizing role of government size. European Journal of Political Economy, 27 4: 781-790. doi:10.1016/j.ejpoleco.2011.04.002

Author Carmignani, Fabrizio
Colombo, Emilio
Tirelli, Patrizio
Title Macroeconomic risk and the (de)stabilizing role of government size
Journal name European Journal of Political Economy   Check publisher's open access policy
ISSN 0176-2680
Publication date 2011-12
Sub-type Article (original research)
DOI 10.1016/j.ejpoleco.2011.04.002
Volume 27
Issue 4
Start page 781
End page 790
Total pages 10
Place of publication Amsterdam, Netherlands
Publisher Elsevier
Collection year 2012
Language eng
Abstract Is government size the desirable response to macroeconomic risk, or it is the consequence of distorted political incentives with adverse effects on macroeconomic volatility? This paper reconsiders the mutual interdependence between government size and growth volatility in a large sample of countries within a system of simultaneous equations. We find that higher volatility is associated with larger government size and vice versa. Thus emphasis on government size as a mean capable, per se, of reducing macroeconomic risk is ill-conceived. We also identify a set of institutional limits to government discretion that also have beneficial effects on volatility. These include domestic political institutions, de facto central bank independence and a stable nominal exchange rate regime.
Keyword Output volatility
Government expenditure
Trade openness
Financial openness
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2012 Collection
School of Economics Publications
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Citation counts: TR Web of Science Citation Count  Cited 7 times in Thomson Reuters Web of Science Article | Citations
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Created: Mon, 24 Oct 2011, 10:50:58 EST by Alys Hohnen on behalf of School of Economics