Journal
BULLETIN OF ECONOMIC RESEARCH
Volume 66, Issue 2, Pages 183-204Publisher
WILEY
DOI: 10.1111/j.1467-8586.2012.00438.x
Keywords
O50; public spending; public finance; E62; government size; non-linear hypothesis; H50; threshold effects; economic growth; C23
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Theoretical models suggest a non-linear relationship between government size and long-run economic growth. However, testing this hypothesis empirically in cross-country studies is complicated by the endogeneity of government spending and the accurate identification of inflexion points. This paper examines the non-linear hypothesis by incorporating threshold analysis in a cross-country growth regression. The methodology utilizes a sample-splitting framework and follows an objective strategy for identifying and testing changes in the slope. The results provide evidence in support of the non-linear hypothesis for a broad panel of countries.
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