Public Expenditure and Economic Performance in OECD Countries

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Abstract
This paper presents data on the size and growth of general government expenditures and receipts relative to GDP in OECD countries over the 1960–81 period. A feature of these trends is the widespread appearance of budget deficits in the mid-seventies, following the sharp increase in government expenditures relative to GDP in the two years immediately after the first oil shock in 1973. Having presented these data, the paper tests several hypotheses relating the size and growth of government to macroeconomic performance using an international cross-section framework. The economic performance indicators used are the rate of economic growth, the rate of consumer price inflation and private sector employment growth. Overall, the results provide little evidence that government size and growth have been detrimental to economic performance, particularly in the period since 1975, although an inverse relation existed in the sixties between government size and economic growth.