The Size of Government and U.S.-European Differences in Economic Performance
IMF Working Papers, April 1, 2009
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- The Size of Government and U.S.-European Differences in Economic Performance
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Bibliographic details
- Authors: Gerwin Bell, Norikazu Tawara
- Published: April 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451872392.001
Summary
- An influential strand of recent research has claimed that large governments in European countries explain their weaker long-term economic performance compared to the U.S.
- Despite these alleged costs, large governments have been popular with electorates.
- This paper seeks to shed light on this apparent inconsistency; it confirms an adverse effect of taxes on labor supply, but also finds evidence of efficiency-increasing government intervention.
- However, and especially in the core "Rhineland-model" European countries, actual government policies often depart from such efficient interventions, pointing to the possibility that voters prefer redistribution even at the cost of allocational efficiency.
Key findings and evidence
- Confirms an adverse effect of taxes on labor supply.
- Finds evidence of efficiency-increasing government intervention.
- Observes that in core "Rhineland-model" European countries, actual government policies often depart from efficient interventions.
- Interprets departures as possibly reflecting voter preferences for redistribution at the cost of allocational efficiency.
Policy implications and interpretation
- Trade-off highlighted between tax-induced disincentives on labor supply and potential efficiency gains from government intervention.
- Suggests that voter preferences for redistribution can lead to policy choices that reduce allocational efficiency, even where more efficient interventions exist.
Publication and metadata
- Authors: Gerwin Bell, Norikazu Tawara
- Date: April 1, 2009
- Series: Working Paper No. 2009/092
- Issue: 092
- Volume: 2009
- Pages: 51
- DOI: https://doi.org/10.5089/9781451872392.001
- Stock No: WPIEA2009092
- ISBN: 9781451872392
- ISSN: 1018-5941
- Subject tags: Labor, Labor market policy, Labor markets, Labor supply, Marginal effective tax rate, Tax policy
- Keywords: efficiency parameter, Europe, government policy, Labor market policy, labor market policy reform, Labor markets, Labor supply, Macroeconomics, Marginal effective tax rate, policy variable, Public finance, reforms in core euro-zone economy, tax rate, utility function, WP
Source: IMF Working Papers — "The Size of Government and U.S.-European Differences in Economic Performance" (April 1, 2009) by Gerwin Bell and Norikazu Tawara.