Determinants of economic growth: A contemporary empirical analysis

Abstract. This empirical study investigates of the impacts on per capita real economic growth of reduced fiscal freedom on the one hand and reduced “freedom from excessive government size” on the other hand. After controlling for nominal long term interest rates, net exports, federal government budget deficits, and other factors, panel two stage least squares estimation using a four-year panel data set for the OECD nations as a group reveals that reduced fiscal freedom leads to a reduced rate of per capita real economic growth; furthermore, it is found that reduced freedom from excessive government size also leads to a reduced rate of per capita real economic growth.  In addition, real economic growth is found to be reduced by higher budget deficits and higher lon term interest rates.