We revisit the empirical relationship between output volatility and government expenditure in a model where the two are jointly deter- mined. The key regressors in our model are trade and ¯nancial integra- tion indicators, institutional variables, including central bank indepen- dence, and a measure of de facto exchange rate °exibility. Our ¯ndings consistently signal that government discretion has destabilising e®ects on growth volatility. We con¯rm that government size increases with trade integration, but this has adverse e®ects because public spending is positively related to growth volatility. Institutions that increase policy- makers accountability limit the level of public expenditure and volatility. In this regard, our results support the view that stronger institutions increase policy efficiency.

Carmignani, F., Colombo, E., Tirelli, P. (2007). Public expenditure and growth volatility: do "globalisation" and institutions matter? [Working paper del dipartimento].

Public expenditure and growth volatility: do "globalisation" and institutions matter?

COLOMBO, EMILIO;TIRELLI, PATRIZIO
2007

Abstract

We revisit the empirical relationship between output volatility and government expenditure in a model where the two are jointly deter- mined. The key regressors in our model are trade and ¯nancial integra- tion indicators, institutional variables, including central bank indepen- dence, and a measure of de facto exchange rate °exibility. Our ¯ndings consistently signal that government discretion has destabilising e®ects on growth volatility. We con¯rm that government size increases with trade integration, but this has adverse e®ects because public spending is positively related to growth volatility. Institutions that increase policy- makers accountability limit the level of public expenditure and volatility. In this regard, our results support the view that stronger institutions increase policy efficiency.
Working paper del dipartimento
Scientifica
Output volatility; government expenditure; trade openness; financial openness; central bank independence; political institutions
English
Carmignani, F., Colombo, E., Tirelli, P. (2007). Public expenditure and growth volatility: do "globalisation" and institutions matter? [Working paper del dipartimento].
Carmignani, F; Colombo, E; Tirelli, P
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/23145
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