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Economics Research International
Volume 2012 (2012), Article ID 383812, 8 pages
http://dx.doi.org/10.1155/2012/383812
Research Article

Revisiting the Relationship between Economic Growth and Government Size

Department of Economics, Minnesota State University, 150 Morris Hall, Mankato, MN 56001, USA

Received 29 March 2012; Accepted 22 May 2012

Academic Editor: Paresh Kumar Narayan

Copyright © 2012 Atrayee Ghosh Roy. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

The purpose of this paper is to explore the association between government size and economic growth in the United States using time-series data over the period 1950–2007. In particular, this paper examines the effects of two key components of government expenditure, namely, government consumption and government investment, on US economic growth. A simultaneous-equation model is used to deal with the problem of bi-directional relationship between government size and economic growth. The results suggest that an increase in government consumption slows economic growth, while a rise in government investment enhances economic growth. Furthermore, the results also show that government investment crowds out private investment. Therefore, the overall effect of total government expenditure on economic growth is ambiguous.