António Afonso, Ph.D., Economics, ECB and ISEG/UTL, Kaiserstrasse 29, Frankfurt am Main, 60311, Germany and Davide Furceri, Ph.D., University of Illinois at Chicago, 601 S. Morgan Street, Chicago, IL 60607.
This paper analyses the effects in terms of size and volatility of government revenue and spending on growth in OECD and EU countries. The results of the paper suggest that both variables are detrimental to growth. In particular, looking more closely at the effect of each component of government revenue and spending, the results point out that i) indirect taxes (size and volatility); ii) social contributions (size and volatility); iii) government consumption (size and volatility); iv) subsidies (size); and v) government investment (volatility) have a sizeable, negative and statistically significant effect on growth.