The Size of Government and U.S.-European Differences in Economic Performance

April 1, 2009

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Gerwin Bell, and Norikazu Tawara. The Size of Government and U.S.-European Differences in Economic Performance, (USA: International Monetary Fund, 2009) accessed September 18, 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

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. On the other hand, 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.

Subject: 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

Publication Details

Pages:

51
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/092
Stock No:

WPIEA2009092
ISBN:

9781451872392
ISSN:

1018-5941

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