Government Size and Economic Growth in Italy: A Time-Series Analysis

European Scientific Journal, 12, 7, 149-169, DOI: 10.19044/esj.2016.v12n7p149, ISSN: 1857-7431

Posted: 14 Apr 2016 Last revised: 19 May 2016

See all articles by Cosimo Magazzino

Cosimo Magazzino

University of Rome III; Royal Economic Society; Italian Economic Association

Francesco Forte

Sapienza University of Rome

Date Written: March 1, 2016

Abstract

The aim of this paper is to empirically assess the relationship between government size and economic growth. Using time series methodologies applied to annual data for Italy, the effect of public expenditure, unemployment, and fiscal reforms on economic activity have been analysed. The data used in these analyses have been collected and shown in Forte (2011). The analysis covered a very long period, 1861-2008. Our results show the presence of a non-linear relationship between the size of the public sector (measured by the share of government expenditure over GDP) and the economic growth rate for Italy. In general, the presence of an inverted “U-shape” curve, which emerges for the last two decades, suggests that expenditure cuts might be faster than GDP dynamic. This result is in line with recent empirical literature on this issue. Interestingly, for the monarchic years, it has been found that the zero budget constraint provoked a slower aggregate income variation.

Keywords: Economic growth, fiscal consolidation, BARS curve, Italy, time series

JEL Classification: C22, E62, H60, O40

Suggested Citation

Magazzino, Cosimo and Forte, Francesco, Government Size and Economic Growth in Italy: A Time-Series Analysis (March 1, 2016). European Scientific Journal, 12, 7, 149-169, DOI: 10.19044/esj.2016.v12n7p149, ISSN: 1857-7431, Available at SSRN: https://ssrn.com/abstract=2763799

Cosimo Magazzino (Contact Author)

University of Rome III ( email )

Via Ostiense 139
Rome, RM 00154
Italy

HOME PAGE: http://scienzepolitiche.uniroma3.it/cmagazzino/

Royal Economic Society ( email )

London
United Kingdom

Italian Economic Association ( email )

Piazzale Martelli, 8
Ancona, AN 60121
Italy

HOME PAGE: http://www.siecon.org/online/en/

Francesco Forte

Sapienza University of Rome ( email )

Rome
Italy

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