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EXPLORING CROSS-COUNTRY VARIATION IN GOVERNMENT SHARES: WHAT CAN WE LEARN FROM RELATIVE PRODUCTIVITIES?

Published online by Cambridge University Press:  07 February 2012

Maksym Obrizan
Maksym Obrizan*
Affiliation:
Kyiv School of Economics and Kyiv Economics Institute
*
Address correspondence to: Maksym Obrizan, 13 Yakira Street, Suite 318, Kyiv 04119, Ukraine; e-mail: mobrizan@kse.org.ua.
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Abstract

Government shares in total output are characterized by significant variation across countries. I noticed a strong negative correlation between government consumption shares and the price of government services in terms of private consumption. Motivated by this empirical observation, I developed a neoclassical growth model with added government that is capable of matching the variation in government shares very closely using only relative prices. In addition, I provide empirical evidence showing that the relative price of government consumption increases with income, which is consistent with distortions prevailing in poor countries. These two observations combined imply that government shares tend to be higher in poorer countries.

Keywords

Government ConsumptionRelative Government SharesRelative International PricesNeoclassical Growth ModelPenn World Table
Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Issue 2 , March 2013 , pp. 356 - 372
Copyright
Copyright © Cambridge University Press 2012

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