Premium
Government Size and Stochastic Growth
Author(s) -
Lee ShinChyang,
Wu ShangFen,
Lee ChengTe
Publication year - 2017
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.12086
Subject(s) - economics , government (linguistics) , endogenous growth theory , government spending , crowding out , demand side , supply side , public economics , monetary economics , microeconomics , economic growth , market economy , welfare , human capital , philosophy , linguistics
This paper analyses the effects of the size of government on economic growth in a stochastic endogenous growth model involving the supply‐side effect and demand‐side effect produced by government spending. We show that a rise in the government spending affects economic growth through three channels, including the crowding‐out effect, the spin‐off effect and the resource mobilisation effect. We demonstrate that there exists an optimal size of government that maximises the economic growth rate.