Conclusion
A substantial portion of the slowdown in productivity and economic growth in the seventies and eighties cannot be ascribed to traditional factors. We have found one potential additional source: the dramatic growth in the scale of government. Employing a theoretical model of output growth, we derive an equation which controls for cyclical influences and which permits distinguishing the effects of government growth on the economic base from the effects on the economic growth rate. We find that increases in the scale of government lead to statistically significant reductions in both the economic base and the economic growth rate. In addition, we find that most of this government-induced retardation of economic activity arises from reductions in productivity rather that reductions in the employment of factors.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Averitt, R.T. (1980). The dual economy: The dynamics of American industry structure. New York: W.W. Norton.
Baily, M.N. (1984). Will productivity growth recover? Has it done so already? American Economic Review 74 (May): 231–35.
Barro, R.J. (1981). Output effects of government purchases. Journal of Political Economy 89 (December): 1086–1121.
Barro, R.J. (1979). On the determination of the public debt. Journal of Political Economy 87 (October): 940–971.
Barth, J.R., Keleher, R.E., and Russek, F.S. (1986). The scale of government and economic activity. Unpublished manuscript.
Branson, W.H. (1979). Macroeconomic theory and policy. New York: Harper & Row.
Bosworth, B.P. (1984). Tax incentives and economic growth. Washington, DC: Brookings Institution.
Campbell, J.Y., and Mankiw, N.G. (1987). Permanent and transitory components in macroeconomic fluctuations. American Economic Review 77 (May): 111–117.
Darby, M.R. (1984). The U.S. productivity slowdown: A case of statistical myopia. American Economic Review 74 (June): 301–322.
Dennison, E.F. (1974). Accounting for slower economic growth: The United States in the 1970s. Washington, DC: Brookings Institution.
Diamond, P.A. (1965). National debt in a Neoclassical growth model. American Economic Review 55 (December): 1126–1150.
Evans, M.K. (1969) Macroeconomic activity, theory, forecasting, and control. New York: Harper & Row.
Grossman, P.J. (1988). Government and economic growth: A non-linear relationship. Public Choice 56:193–200.
Hausman, J.A. (1981). Labor supply. In H.J. Aaron and J.A. Pechman (Eds.), How taxes affect economic behavior, 27–83. Washington, DC: Brookings Institution.
Hulten, C.R., and Schwab, R.M. (1984). Regional productivity growth in U.S. manufacturing: 1951–78. American Economic Review 74 (March): 152–162.
Kormendi, R.C. (1983). Government debt, government spending, and private sector behavior. American Economic Review 73 (December): 994–1010.
Kotlikoff, L.J. (1984). Taxation and savings: A Neoclassical perspective. Journal of Economic Literature 22 (December): 1576–1629.
Lucas, R.E. (1973). Some international evidence on output-inflation tradeoffs. American Economic Review 63 (June): 326–334.
Lucas, R.E. (1970). Capacity, overtime and empirical production functions. American Economic Review 60 (May): 23–27.
Lucas, R.E., and Rapping, L.A. (1969). Real wages, employment and inflation. Journal of Political Economy. 77 (September): 721–754.
Marlow, M.L. (1986). Private sector shrinkage and the growth of industrialized economies. Public Choice 49(2): 143–154.
Marlow, M.L. (1988). Fiscal decentralization and government size. Public Choice 56: 259–269.
Peden, E.A. (1987). The effects of government expenditures on economic output and growth in the United States: The post World War II experience (1948–84). Unpublished doctoral dissertation. The George Washington University. Washington, DC.
Ram, R. (1986). Government size and economic growth: A new framework and some evidence from cross-section and time-series data. American Economic Review 76 (March): 191–203.
Solow, R.M. (1957). Technical change and the aggregate production function. Review of Economics and Statistics 39 (August): 312–320.
Author information
Authors and Affiliations
Additional information
The authors thank an anonymous referee and the editor of this journal for useful comments on an earlier version.
Rights and permissions
About this article
Cite this article
Peden, E.A., Bradley, M.D. Government size, productivity, and economic growth: The post-war experience. Public Choice 61, 229–245 (1989). https://doi.org/10.1007/BF00123886
Issue Date:
DOI: https://doi.org/10.1007/BF00123886