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The Size of Government and U.S.-European Differences in Economic Performance
Author:
Mr. Gerwin Bell
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and
Norikazu Tawaranull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 092
Language:
English
Publication Date:
01 Apr 2009
DOI:
https://doi.org/10.5089/9781451872392.001
ISBN:
9781451872392
ISSN:
1018-5941
Pages:
51
Keywords:
WP; tax rate; utility function; Macroeconomics; Public finance; efficiency parameter; labor market policy reform; government policy; reforms in core euro-zone economy; policy variable; Labor supply; Labor markets; Marginal effective tax rate; Labor market policy; Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2009: Issue 092