Government Consumption Volatility and the Size of Nations

Davide Furceri, Sinem Kılıç Çelik, Marcos Poplawski-Ribeiro
2016 FinanzArchiv / Public Finance Analysis (FA)  
This paper provides empirical evidence showing that smaller countries tend to have more volatile government consumption for a sample of 160 countries from 1960 to 2000. It also shows that country size is negatively related to the discretionary part of government consumption and to the volatilities of most of government consumption items. We argue that the larger size of a country decreases the volatility of government consumption because it acts as an insurance against idiosyncratic shocks, and
more » ... ncratic shocks, and it leads to increasing returns to scale due to the higher ability of the government to spread its cost of financing over a larger pool of taxpayers. The results are robust to different time and country samples, different econometric techniques and to several sets of control variables.
doi:10.1628/001522116x14660601438148 fatcat:p4cl6iuvnjfyjhsupswbbqhrim