Swipe to navigate through the articles of this issue
While previous research documents a negative relationship between government size and economic growth, suggesting an economic cost of big government, a given government size generally affects growth differently in different countries. As a possible explanation of this differential effect, we explore whether government legitimacy (measured by satisfaction with the way democracy works) influences how a certain government size affects growth. On the positive side, a government perceived as legitimate may “get away” with being big since legitimacy can affect behavioral response to, and therefore the economic growth cost of, taxation and government expenditures. On the negative side, perceived legitimacy may make voters less prone to acquire information, which in turn facilitates interest-group oriented or populist policies that harm growth. A panel-data analysis of up to 30 developed countries, in which two different measures of the size of government are interacted with government legitimacy, reveals that perceived legitimacy exacerbates a negative growth effect of government size in the long run. This could be interpreted as governments taking advantage of being regarded as legitimate in order to secure short-term support at a long-term cost to the economy.
Please log in to get access to this content
To get access to this content you need the following product:
Acemoglu, D., & Johnson, S. (2005). Unbundling institutions. Journal of Political Economy, 113(5), 949–995. CrossRef
Aghion, P., Algan, Y., Cahuc, P., & Shleifer, A. (2010). Regulation and distrust. Quarterly Journal of Economics, 125(3), 1015–1049. CrossRef
Aidt, T. (2003). Economic analysis of corruption: A survey. Economic Journal, 11(491), F632–F652. CrossRef
Alfonso, A., & Furceri, D. (2010). Government size, composition, volatility and economic growth. European Journal of Political Economy, 26(4), 517–532. CrossRef
Beetham, D. (1993). In defence of legitimacy. Political Studies, 41(3), 488–491. CrossRef
Bergh, A., & Bjørnskov, C. (2011). Historical trust levels predict current welfare state size. Kyklos, 64(1), 1–19. CrossRef
Bergh, A., & Henrekson, M. (2011). Government size and growth: A survey and interpretation of the evidence. Journal of Economic Surveys, 25(5), 872–897. CrossRef
Bergh, A., & Karlsson, M. (2010). Government size and growth: Accounting for economic freedom and globalization. Public Choice, 142(1), 195–213. CrossRef
Bjørnskov, C., & Sønderskov, K. M. (2013). Is social capital a good concept? Social Indicators Research, 114(3), 1225–1242. CrossRef
Bjørnskov, C., & Méon, P.-G. (2013). Is trust the missing root of institutions, education, and development? Public Choice, 157(3–4), 641–669. CrossRef
Bleaney, M., Gemmell, N., & Kneller, R. (2001). Testing the endogenous growth model: Public expenditure, taxation, and growth over the long run. Canadian Journal of Economics, 34(1), 36–57. CrossRef
Blind, P. K. (2006). Building trust in government in the twenty-first century: Review of literature and emerging issues. Unpublished manuscript, UNDESA, New York.
Brambor, T., Roberts Clark, W., & Golder, M. (2006). Understanding interaction models: Improving empirical analyses. Political Analysis, 14(1), 63–82. CrossRef
Buchanan, J. M. (1967). The fiscal illusion. Public finance in democratic process (pp. 126–142). Chapel Hill: University of North Carolina Press.
Caplan, B. (2007). The myth of the rational voter. Princeton: Princeton University Press.
Caplan, B., & Stringham, E. (2005). Mises, Bastiat, public opinion, and public choice. Review of Political Economy, 17(1), 79–105. CrossRef
Chang, Y., Chu, Y., & Huang, M. (2006). The uneven growth of democratic legitimacy in East Asia. International Journal of Public Opinion Research, 18(2), 246–255.
Chanley, V. A., Rudolph, T. J., & Rahn, W. M. (2000). The origins and consequences of public trust in government: A time series analysis. Public Opinion Quarterly, 64(3), 239–256.
Clark, J. R., & Lee, D. R. (2001). Is trust in government compatible with trustworthy government? In W. F. Shughart II & L. Razzolini (Eds.), The Elgar companion to public choice. Cheltenham: Edward Elgar.
Colombatto, E. (2014). A theory of institutional resilience. In T. Eisenberg & G. B. Ramello (Eds.), Research handbook on comparative law and economics. Cheltenham: Edward Elgar.
De Boef, S., & Keele, L. (2008). Taking time seriously. American Journal of Political Science, 52(1), 184–200. CrossRef
Downs, A. (1957). An economic theory of democracy. Cambridge: Cambridge University Press.
EuroBarometer (2013). Standard EuroBarometer, all editions 1973–2012. Online database. Available at http://ec.europa.eu/public_opinion/index_en.htm.
Facchini, F., & Melki, M. (2013). Efficient government size: France in the 20th century. European Journal of Political Economy, 31(September), 1–14. CrossRef
Flachaire, E., García-Peñalosa, C., & Konte, M. (2014). Political versus economic institutions in the growth process. Journal of Comparative Economics, 42(1), 212–229. CrossRef
Gilley, B. (2006). The determinants of state legitimacy: Results for 72 countries. International Political Science Review, 27(1), 47–71. CrossRef
Gwartney, J. D., Lawson, R. A., & Hall, J. (2012). Economic freedom of the world: 2012 annual report. Vancouver: The Fraser Institute.
Halla, M., & Schneider, F. G. (2014). Taxes and benefits: Two options to cheat on the state. Oxford Bulletin of Economics and Statistics, 76(3), 411–431. CrossRef
Heston, A., Summers, R., & Aten, B. (2012). Penn world tables version 7.1. Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania.
King, R. G., & Rebelo, S. (1990). Public policy and economic growth: Developing neoclassical implications. Journal of Political Economy, 98(5), S126–S150. CrossRef
Kneller, R., Bleaney, M. F., & Gemmell, N. (1999). Fiscal policy and growth: Evidence from OECD countries. Journal of Public Economics, 74(2), 171–190. CrossRef
Levi, M., Sacks, A., & Tyler, T. R. (2009). Conceptualizing legitimacy, measuring legitimating beliefs. American Behavioral Scientist, 53(3), 354–375. CrossRef
Lieberman, E. S. (2002). Taxation data as indicators of state-society relations: Possibilities and pitfalls in cross-national research. Studies in Comparative International Development, 36(4), 89–115. CrossRef
Lipset, S. M. (1959). Some social requisites of democracy: Economic development and political legitimacy. American Political Science Review, 53(1), 69–105. CrossRef
Mendoza, E. G., Milesi-Feretti, G. M., & Asea, P. (1997). On the ineffectiveness of tax policy in altering long-run growth: Harberger’s superneutrality conjecture. Journal of Public Economics, 66(1), 99–126. CrossRef
Murphy, K. M., Shleifer, A., & Vishny, R. W. (1993). Why is rent-seeking so costly to growth? American Economic Review, 83(2), 409–414.
Nannestad, P., & Paldam, M. (1994). From the pocketbook of the welfare man: A pooled cross-section study of economic voting in Denmark, 1986–92. British Journal of Political Science, 27(1), 119–136.
Nijkamp, P., & Pot, J. (2004). Meta-analysis of the effect of fiscal policies on long-run growth. European Journal of Political Economy, 20(1), 91–124. CrossRef
Nordhaus, W. (1975). The political business cycle. Review of Economic Studies, 42(2), 169–190. CrossRef
Nyström, K. (2008). The institutions of economic freedom and entrepreneurship: Evidence from panel data. Public Choice, 136(3–4), 269–282. CrossRef
OECD (2013). OECD tax statistics. Database. Online database available at doi: 10.1787/tax-data-en.
Oto-Peralías, D., & Romero-Ávila, D. (2013). Tracing the link between government size and growth: The role of public sector quality. Kyklos, 66(2), 229–255. CrossRef
Pinotti, P. (2012). Trust, regulation and market failures. Review of Economics and Statistics, 94(3), 650–658. CrossRef
Pitlik, H., & Kouba, L. (2014). Does social distrust always lead to a stronger support for government intervention? Policy paper no. 8, WWWforEurope, European Commission, Brussels.
Richardson, G. (2008). The relationship between culture and tax evasion across countries: Additional evidence and extensions. Journal of International Accounting, Auditing and Taxation, 17(2), 67–78. CrossRef
Rodrik, D., Subramanian, A., & Trebbi, F. (2004). Institutions rule: The primacy of institutions over geography and integration in economic development. Journal of Economic Growth, 9(2), 131–165. CrossRef
Romero-Ávila, D., & Strauch, R. (2008). Public finances and long-term growth in Europe: Evidence from a panel data analysis. European Journal of Political Economy, 24(1), 172–191. CrossRef
Rudolph, T. J. (2009). Political trust, ideology, and public support for tax cuts. Public Opinion Quarterly, 73(1), 144–158. CrossRef
Rudolph, T. J., & Evans, J. (2005). Political trust, ideology, and public support for government spending. American Journal of Political Science, 49(3), 660–671. CrossRef
Sobel, R. S., & Coyne, C. J. (2011). Cointegrating institutions: The time series properties of country institutional measures. Journal of Law and Economics, 54(1), 111–134. CrossRef
Tyler, T. R. (2006a). Psychological perspectives on legitimacy and legitimation. Annual Review of Psychology, 57, 357–400. CrossRef
Tyler, T. R. (2006b). Why people obey the law. Princeton: Princeton University Press.
WDI (2013). World development indicators. Database. Washington, DC: World Bank.
Weede, E. (1996). Legitimacy, democracy and comparative economic growth reconsidered. European Sociological Review, 12(3), 217–225. CrossRef
Yamamura, E. (2014). Trust in government and its effect on preferences for income redistribution and perceived tax burden. Economics of Governance, 15(1), 71–100. CrossRef
- Legitimacy and the cost of government
- Publication date
- Springer US
Neuer Inhalt/© Stellmach, Neuer Inhalt/© BBL, Neuer Inhalt/© Maturus, Pluta Logo/© Pluta, Neuer Inhalt/© hww