Government Size and Intersectoral Income Fluctuation: An International Panel Analysis

April 1, 2007

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Daehaeng Kim, and Chul-In Lee. Government Size and Intersectoral Income Fluctuation: An International Panel Analysis, (USA: International Monetary Fund, 2007) accessed November 8, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Using the between-sector variation in income as a new measure of economic uncertainty, this paper proposes simple models and supportive empirical evidence for the causal relations between economic uncertainty and government size in the open economy setting. Key empirical findings include: (1) a larger government reduces economic uncertainty, and, at the same time, (2) an economy facing higher uncertainty has a larger government. However, (3) the government tends to resort to redistributive policies to reduce the uncertainty, while (4) government direct spending is also an effective option for the purpose. The study also finds that (5) cross-sectional measure of economic uncertainty tends to rise when a country becomes more open to international trade.

Subject: Expenditure, Income shocks, Labor, Personal income, Terms of trade

Keywords: Government spending, Open economy, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/093
Stock No:

WPIEA2007093
ISBN:

9781451866575
ISSN:

1018-5941

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