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  • The optimal size of government in Australia

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    Makin167960.pdf (482.3Kb)
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    Author(s)
    Makin, Anthony J
    Pearce, Julian
    Ratnasiri, Shyama
    Griffith University Author(s)
    Makin, Tony J.
    Ratnasiri, Shyama G.
    Year published
    2019
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    Abstract
    In the extensive literature on the role of government in the economy scant attention has been paid to the influence of the relative size of government on an economy's rate of growth. This paper canvasses perspectives on why the size of government has grown, how this affects the wider economy, and why a trade-off exists between increased government size and economic growth beyond some optimal level, as conveyed by the so-called BARS curve. The paper next examines in-depth trends in government spending in Australia which has grown to a historically high level of 37 per cent of national income post GFC before econometrically ...
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    In the extensive literature on the role of government in the economy scant attention has been paid to the influence of the relative size of government on an economy's rate of growth. This paper canvasses perspectives on why the size of government has grown, how this affects the wider economy, and why a trade-off exists between increased government size and economic growth beyond some optimal level, as conveyed by the so-called BARS curve. The paper next examines in-depth trends in government spending in Australia which has grown to a historically high level of 37 per cent of national income post GFC before econometrically estimating the optimal size of government on Australia's BARS curve using the ARMAX approach. The results suggest the share of government spending in Australia consistent with maximising economic growth is 31 per cent of national income, significantly below the current level.
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    Journal Title
    Economic Analysis and Policy
    Volume
    62
    DOI
    https://doi.org/10.1016/j.eap.2018.12.001
    Copyright Statement
    © 2019 Economic Society of Australia, Queensland. Published by Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Licence (http://creativecommons.org/licenses/by-nc-nd/4.0/) which permits unrestricted, non-commercial use, distribution and reproduction in any medium, providing that the work is properly cited.
    Subject
    Macroeconomics (incl. monetary and fiscal theory)
    Publication URI
    http://hdl.handle.net/10072/383338
    Collection
    • Journal articles

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