htwo rd Gnearutidnep xcEilb u,Pytniatrec nlUacitiloP ybr aaDiluJ noW-lohC iL dna not n.AV illetacsuM University of Glasgow Correspondence to: ,ybra DailuJ .,t spfceoiDm onocE ,gnidliu Bhtim SmadA ,wogsa l fGyotisrevinU wo g2s1a,GlTGR8 .modgn idKetinU : l4e 4T1+ 401239364 : x4 a41 F+400134394 . J:liamE ku.ca.alg.icscos@ybraD 1. Introduction tceff ana cytilibatsn ilacitilo phcih whguorh tslennah cf orebmu naer aerehT d ntaser nluaic orsetae rhgci htwcap mei h stlienna hscuoiv beo n.Ohtwo rcgimonoce eti u sq ti.Itsev n oistevitnec nei h nteov anh ancoitulov edr nlaavaeh pluacitilop str cos ef tym pyharestgmaho rihtrn erporp ioott tfrnaekcpehhc erttaftalooprppa tnemtsev neitavirp 1yrtnu o nactinemtsev nticer indgier oefcud eyr adm n,a 2,ylralimi S. thg iyme h,tnworhtre vgoni efrboegn ae dhn tud rnkaa ee wrsarel uerre hsweirtnu onci y ahmci h,wseitivit cganikees-tn e nreigag n oestpuo ryg ewkol l oaetvitnec n nieavah htwo rcgimono cmer anhiaga 3ta hetcnedi vleacirip meelbaredisn o ec obstme eesre h.T gniwoll osftnemnrev o fgsoegna hecnitu o ordtesop pso al(avaeh pluacitil orpojam sp u do)ncsanoitcele ee sh(two rcgimono ctecef fyalesrev dn aatcate’d aniselA et al. , 1996, y ld rn , ea,6dto9nsr9aar1EaB .,)o3l9e9b1eR d nlaufeca eypllaren eeg rsaegna htcnemnrev oegre h,wseicarcom endred onmI cimonoc en otcapm in aeva hllit sya mytilibatsn ilacitilo p,smro nlanoitutitsno cwollof lacitil o fptocap mei hhtguor h stsiled oemse h ntkir o twmasinahc enmi aem h.Thtworg n oytilibatsni tnemnrevog aipoym niatrec neuv ahhci hswtnemnrev oggnikool-drawr o:f cimono cmeret-gn ot lugoniyrr andcietseret net iboy nanmoitcele- efsrotcepsorp seicilop 4 ,ecnat sr.noiF ss e elyb asmtnemnrev owg oshesisahp m)e399 1n(ossnevS . mets ylsag eel h otsttnemevorp meik a omdtenilcni d noavlaC n)e7z9aw9ro1Dh(s n.Isnoisic etdnemtsev nfhiot aeprut ue fhttrots in dayctniatrec nyucil owpoh xuereveD e hntw ond u orsttnemnrev osgegaruoc nyetilibats nliacitil o)p699 1n( edWna 1 ls alceid ton remihorcFoi eheh wh ttt k,n scheystat m ttclw eefrheofecoegfrosrpifgoorafrnpe Tornell and oc s)a2l9e9V1 (dna Benhabib and .i)n6i 9hr9co1iF(tsu R,aye vereuss Persson and Tabellini (1998). 2 ee S kirdoR.)1991( 3 yhp r eueMS et al. (1991). 1 noitax altatip aecsaerc nosittnemnrev oegrut ugfnigaruoc nseu h,tes atbes ssa’ymonoce .decud es,rinoitax aetrut urfehg ighnitcep x,etnemtsev neitavi rtpa httlus ee rhhttiw dnnoassreP odte s sunioitax altatip ahcci h nwlied odmoirep -da2li u)b899 1i(nillebaT x aetrut uef hstecnah nde nhatwo rcgimono cseevi rhdci h,wtnemtsev nciilb uepcnanif tnebmucn in aro felbaula vsse ls itnemtsevn icilbu ptah ts imelbor peh T.esab x aetrut usf’ymono cee h ftsos eelsuac e,bniatrec n sunioitcele- e frtinemnrevog lacitil oepcn e.Hsdo ocgilb udperrefe rsp’tnebmuc nei h nttone p eslbl isweunever cilb uspecud e)rtnebmuc nei hrt onfoitcele- e fryotniatrec nruetae r agy(tilibatsni .aipoy mycilo psesaercn it iesuace btnemtsevni neewte bkni levitage naf oruova fn iecnediv ee bo tsmee sereh t,yllaciripmE lacitilo ps’tnemnrevo gan isegnah cf oycneuqer feht (ytilibatsn ilacitilo pronim ee sh(two rcgimono cd en)anoixelpmoc aniselA et al ., 1996, Perotti, 1996). oetu dy(tilibats nliacitil oep hnteewt ekbn iel h ntsouc o ef,wrep aspi hntI tncoaa p emhhigtuo rhhttw ocrigmon o dc)nesaemoc tluaorotc eynltieniatrecnu cilb unpeewt eebrutidnep xtenemnrev oegtacol lowa t onshonoisic esd’tnemnrevog e h stnioitubirtn orc u fodoed deaul ae.v htTnemtsev nciilb udp nnaoitpmusnoc lacitil o fptocap mei h ftsoled odmoirep-o wgtnitsi xeem oeskil n,utsr i.Fgniwollof ehyet tswnn(ooiragtrecnu dnnoassreP nozir oehtinif n nieasopo r ep)w89 9,1inillebaT n fanooitcaret nciiman yed h ytdbetaren e sgmiuirbiliu qrealucitr aeapre hlwedom tnemnrev osgled odmoirep- o. wsntcIiman yldacitil ohpt ilwed ohmtwo rsguonegodne gniva hto nf oytilibabor paeca fstnemnrevo gtnebmucn iesuace bsesir ayllarene gaipoym rie hr tosfnoisic egdnidne pd snnaoitax attnerr umco rsftifen eebrut ue fhosttsecca ecif f foeosuac esbesi raaipo ytmnemnrev o,gled orm u no.Iycneutitsn olcacitilop 4 sl feeodvoimtan r .erstoll Feaydmoo mnloacce int oi nmlaei moit soppi yicounc yq oi fmileotohopTn fiscal policy in which the incumbent has an incentive not to act in the social interest see Alesina and Tabellini (1990) and Milesi-Ferretti and ero.a)l4o9p9S1( 2 lacitil odpetim ielr oeamviecr elpl itwnemnrev otgnebmuc n nitaa h ot,snoitavitom .ytilit uremusno cn oga lahti wtcapm iyln ohcih wwo nneka tsnoisice dmor ftifeneb gnidne plsatip amco rsftegd utbnemnrev o fgtofi h oasstda eyltniatrec nluacitil ospuhT .noitpmu stnnoecmnr eovtog l l euadfivo re,pwytniatrec nluacitil olped oosmttpmet traeh teokil n,udnoceS .muirbiliu qleacitil oep httcef fease hwt odh nsaremusn o fcsoecnerefe rep h fttonuocca ht weotragts-yd aceei gttsfa s siottsah n aiht eae ehcervheewtohad Tlrttpaobasmtaoc feocnese rep h ntliiave rdplu ohwci htwa hhtt iywtniatrec nluacitil orped nmuuirbiliuqe lacitilo pf osnoitacilpm ierafle weh tredisno co ts uswoll asih T.rennal plaico slamitp ona .ret onvaid ee mhr toyftniatrecnu r otfnemnoriv nleacitil oep h fttocap mei h ntyol nto o snsiuc orf u,odrihT neewt egbnidne ptsnemnrev ofngooitacol le a hnotos lt au,bsnoisic endoitaxat ta hmto rtfnereff irdeht assriuc or fu,osu h.Tnoitpmusn od cntanemtsev ntinemnrevog ytilauq eenntoiartnec ndoo ntchect iah ewsr iasohnttoitubirt nroec hntio 5 , the cilb u fpsoep yttnereff i ndsoerutidnep xceilb udp n,asthg iyrtrepo r fptonemecrofne cilb unpeewt epbihsnoital eer h ntsouc oef htta hetveil e eb,wwol edbenialp x se.Asdoog .seimono cDeC EeO h ntyillaicep s,ee ntonatrop m ni sanioitpmusn odc ntanemtsevni er tunaoo v i2 i. tetsncwowIe moSd leslraouft cr u esr t spitesfiasheohpTrt en3woitc e nS.Inoitpmusn odc ntanemtsev nciilb unpeewt epbihsnoital eer h ntsoucof .sedulc n no4ocitc e.Sstlus enri ae mhd tnlaed olmaciteroe hr tueoniltuo 5 See for example Saint Paul and Verdier (1993), Perotti (1993). 3 2. t pnt iennh meesetmenh snwoTdertinveetanvBahIoltGewRorG eav anh agcnidne ptsnemnrev otga hetcnedi vleacirip mgenor t sseirehT ee ss(etamit sneoitcn unfoitcudo rmpo rhft ohbtwo rygtivitcudo rntpocap mtinacifingis retni alia , 9,8r9e1uahcsA ,09 9,1llennuM dnnoasirroM Schwartz, 1992) 6 . Work on ta hstisehtop ye h hfrtouov aneficnedi veem owso hsseidu tlsen ayprtnuoc-ssorc secnah nsenoitacinumm odc ntaropsna r sthac uesrutcurtsarf nciilb u npgonidneps s t hc yteelwperosser o(tgdrsnpaaE cilb u npeocnedi vee httsli h,w)39 9,1olebeR ee sd(ex iemr o e mobstdn egtnidne plsanoitacude Barro, 1996). In contrast, most htwo rcgimono cnneooitpmusn otcnemnrev oftgocap meivita g dean niodftn esteiduts ees( Barro, 1996) 7 . IrI adWlr otWs oep hmto refcnedi vleacirip mleaus a fceoce igpnikir t es nO tnemnre vloa g tsnoeitrutidne ptxneer rnfuoocitrop o eern hs p ieatisrhrriatew fnooitropo re phw toshw o th1rsa h.Cseimono cDeC Ee Ohfyton angminidneps DC E fOroebm u nandievlo vse aghnidne ptsnemnrev olgat o nttinemtsev ntinemnrevog 06 9e1cn isseirtnuoc 8d nnaoitpmusn otcnemnrev o ngeisaerc nei hrtalucitr a np.I ee ss(0691-d iem hetcn isseimono cDeC EtOsgno mdaaerpsed inwe esb ashrefsnart dn aaniselA st etngnide euhembtrn uref telo. a v b)re,oea6efight9htTo9ttn1ooreP e h ntsinedr utbb egdnisaerc neisiliba t ossttpmet tea h ftyon atma h stsieimono cDeCEO .syalt uloatip a ncsit u ncdi nnaoitax a ntsiesaerc n nidietlus eerv ash09 9d1 nsa08 9e1tal ndinale r nItinemtsuj dlaacs ief hytllaiceps es(i h otstnoitpec xeesru o fceo rearehT 6 Although the size fo eht lato ttcapmi fo cil bluap tginpiadcnep sy tniov ihttcwuodrogrp si a rettamfo ee se(tab eedmos Holtz-Eakin and . ssr eoditnr catnene sues oweyctil ers),bau 4zvod9tin9rva1abwohcS 7 g n lisad etnss mieieeipp irtas greec nthmeinwo c pusrynmooo reolcFeadremrifvotvesnedoc ,d eeteascollasim Devarajan et al. (1996). 8 The countries considered are Australia (AU), Austria (AT), Belgium (BE), Canada (CA), Finland (FI), France (FR), Germany (GE), Ireland (IR), Italy (IT), Japan (JP), Netherlands (NL), Norway (NO), nedewS , )dWnSa(lrezt i)wZSS( dna eht detin UmodgniK .)KU( eW evah dedulcx ella msseirtnuocekil Luxembourg, Israel and Iceland from our analysis. 4 7991-0 6g9n1idn etpnSemnre v l otasG nta%eomTtse vtnnIemnre vt:or1GahC 05 J P 04 03 02 UA IR AC 01 KU 0 0691 5691 0791 5791 0891 5891 0991 5991 7991 sraeY 03 LN 52 F R 02 I T 51 01 GE B E 5 0 0691 5691 0791 5791 0891 5891 0991 5991 7991 sraeY 04 ZS 03 TA 02 N O F I 01 S W 0 0691 5691 0791 5791 0891 5891 0991 5991 7991 sraeY mku oi c1o dDi/l :n Cm8t-eeDo9ucpCn9OrmEo1uoOcoCES 5 tydubeot n sdit,nano i)ehap9e8b-7891 dn aaniselA Perotti (1996, 1997) that most gnitt unecotartnecn oodctn esttnemtsuj dlaacs i)fgnitsal-gn o.le. il(ufsseccus dn esttnemtsuj dlaacs ilfufsseccus ntus otmsli hnwoitpmusn odc nsarefsna rttnemnrevog lufssecc ugsniwoll o,fta httrop eors lyae h.Tserutidnep xleatip anscit umco rtflus eort mo oosbttnemtsev neitavi rr poyfcned n seeairte h,tstnemtsujda 9 . tneuqesn oec hdtn aP( D nGnioitpmusn otcnemnrev o fgeora hes h nteis isri hT .htwo rygtivitcudo r npniwod-wo lhast idwedicni osc a)htnemtsev ntinemnrev o nglilaf devl o svhaethw oyrtgivitcud orropt claaf t doynttaivitcud orrupo b waso lwhe ol1hbsaT .s06 9e 1hetcn isseirtnu oDcC EfrOoeb m ruaonf rotc esSsenis ue B hnytitivitcudo r:eP1lbaT ytivitc urd ooltracPtaoFT ytivitcud orruPobaL 1960-1973 1 1973-1979 1979-1996 2 1960-1973 1973-1979 1979-1996 AC 1.1 -0.1 -0.6 2.5 1.1 0.9 PJ 5.6 1.1 1.2 8.4 2.8 2.3 UA 2.2 1.2 0.9 3.1 2.5 1.3 GE 4 2.6 1.8 0.6 4.5 3.1 1.2 RF 3.7 1.6 1.3 5.3 2.9 2.2 IT 4.4 2.0 1.2 6.4 2.8 2.1 KU 2.8 0.7 1.2 4.2 1.6 1.7 RI 4.6 3.9 3.6 4.8 4.3 4.1 EB 3.8 1.3 1.0 5.2 2.7 1.9 LN 3.5 1.7 1.0 4.8 2.6 1.5 ON 3 2.2 1.3 0.6 3.8 2.7 1.8 WS 1.9 0.0 1.2 3.7 1.4 2.0 IF 4.0 1.9 2.6 5.0 3.2 3.6 ZS 1.5 -0.7 -0.1 3.3 0.8 0.4 AT 3.2 1.1 1.0 5.7 3.1 2.3 :setoN 1 : e ;lR1 bI6P a9J ; l1Kt2r i Us6aRa 0e9eFv ;6 i1yaW5 9rlS6A1or9C a1Ue A ;O6 ;N6L99N6191 EB.0791 2 :6e9l 9 btT1 rasArolea i teOa;ayNv4la9 9T1I UA IF RI Z.S5991 3 Norway: mainland business sector - excludes shipping and crude petroleum and gas extraction. 4 Germany: Pre-1979 is ,yn a6m9r-e9G7.9W1 sdietalucl asca eht egareva fo naymtrievGi.tWcudorp htworg neewteb 9791 dna 1991 dna latot namreG ytivitcudorp htworg neewteb 1991 dna ehttsom tnece r.realebyaliava 5 ehh.g t tn aPf wdwosrnFodoeosiei Tertr rvy yghgteat a ogupirslipveipetipmwuteoc urduoorbPaL labour and capital productivity. Sample-period averages for capital and labour shares are used as .sthgiew : ekc coiD romCeuloEnotn OuSu o8JOxc9 eE9en1lnbA.a()T95 9 ro Fe e nnc eiandll e-nbtfdnaiuoiosovnseop snoitc as rndtonniaos c nslat a pcfcnxeosaefiiffseenyeK (particularly involving government consumption), see Giavazzi and Pagano (1990, 1995). 6 rebmu nan itu b,skni llasua cyn agniterpretn in ilufera ce bo tsa hen oylsuoivb O eaka t o‘steicil olpacs igfnigna h ncsoisahp mdeewen enare esb aehre hsteirtnu ofco latip ascdraw ontoitacolla esarevlov nyillaren esgi hdt n,a’we imvr ertegnol h tttiihwgu otrnbemnre vrougo b wteafeehLongt dtus B r e ,i.ehnKfshtIUetrutidnepxe gnidne ptsicif eydbere h,wgnidne pcsilb u fp’oel unredlo gsa‘draw ottnemtimm oac w onhe e es obstniam e tr.Itnemtsev nciilb u np)oelc yec hrtev od(ewol l eaybl ndoluow detnevmucri cnee beva hycilo placsi fro f’selu rnedlog ‘s a,er aserusae mhcu sevitceffe mret-gn otla hsmtiods ilwanoitnevn oe cht tu,b)ynamr efeGos ae ch.tf ct(s ae phnti cilb uspdraw ogtnidne ptsnemnrev ofngooitacoll a seaerriuq esrsecc ucsimonoce .tnemtsevni lacitilo pmor fsnu rhcih wtah t:tnuocc asih tn ikni llaciripm egnissi men os ierehT evitatila ueqr o nmyol e orst aeh neor e.Hsnoisic egdnidne ptsnemnrev o ogyttilibatsni fnooixelpm olcacitil onpeewt esbkn iel h nteocnedi vleacirip mee h fttos o.Mecnedive rsoticif eldacs i nfyotniatrec nluacitil o fptocap mei h ntsouc o ofstdn esttnemnrevog ee sg(nidne ptsnemnrev olgatot dn ainibuoR ,b ,,as9h8c9a1S illirG et al. , ,1991dna dn aaniselA ,d nsettnemnre vnoogitil ato ac ehsrtganid nliafr e. n) ee6hg 9T,9i1ttoreP elbisnopse ryllacsi fsse le bo t,snoitpecx eemo shtiw 10 . e hdt nsaegna htcnemnrev o fgyocneuqe ref h nteolbalia veasru o f csoaitaD -n oen rhaci hsweirtnu oDcC E nOtinemnrev otgnebmuc nei h ftnooixelpmoc ee ss(eicarcom eldaitnediserp prodnedloW et al. nyitluciff ied n,orevew o.H)39 9,1 tnemnrevo g f‘yocneuqe ref hmto ryftniatrec nluacitil o fpeoerg eed hgtnirusaem derruc ceov ahhci h’wsegnahc xtesop eefhrotu se adaeimv o trso penso idt h atshit xe etna e h ytdbecneirep xneoititepm olcanret xde nyatniatrec nluacitil o fpeoerg ed ek aetse hetre hswnoitce lmeret-d i.Mecif f fomor est tginir utdnemnrev otgnebmucni 7 fnorett agpnigna he c hoettdi urget t eeadbivo ry pasmll onpoini proalug ed rneacalp t eosrneagn athncemnre vyfocogneuq e er,hfetromreht r.usFecneref elraprotcele -n o nnyitiliba tlsacitil o opetdi udgo osagyawla detnemga refre h,wsmets ynsairatirojam noititepm od cnyatniatrec nluacitil od pn,amr oe n h eotdbtedn eetv ashnoitilaoc .sniagr anboitila onciht idwesilanret n ei obstdn esteitr anpeewteb ta hetu rytllaren e stg,iilasops ir d utaoat addetim isli hhtt inwe v,erevewoH retae rfsgodoir eydpbesiretcara hecr esweirtnu oDcC EyOn asm06 9e1t ae lhetcnis hci hswtnemnrev o sg,aseitr alpacitil onpeewt enboititepm odc nyatniatrec nluacitilop fyocneuqe ref hdt nsanoitila o octtros e ordt ayhlgnisaerc nyitrap-elgn iyslsuoive reprew e hetre hsweirtnu o ncnie v.Edesaerc nsitnemnrev o fgnooixelpm olcacitil oep h ntsitfihs ere hytlbaug r,a) Ke Uh.tg. ee(cnanim oydtrap-elgn ifdsooi r w eaasps09 9d 1nsa0891 lacs i nfsonoitce l feeom iet hdtnuo rnaoititepm olcacitil o fpeoerg eddesaerc n nisaaw noit alxaanto srr eeswpdo rl m a kerftw sohoo fosiotfaitehthitsrt n. eusnmorIocesttam snoisic etdluciff iedk a otstsengnilliw n nu nadietlus e trsireh t notisli h,w) KeU h.tg.e( .)ecna r,Fyla t.Ig. eg(nidne pnsoitpmusn od cnsarefsna rttnemnrev ongo e hdtednet xeev aehW prodnedloW et al. atad ot 899 1gnis uerotmnecer a ttaldu sneoritcele 11 fsoecid nlianoitid d faroebm udanetcurtsn oecv a ehdw n,a suoir aev h ft.Oelpm ars u fosoedac etdnereff ird oyftilibatsni/noitatnemga rlfacitilop eh ty bdenimrete dylegra ler ayna m,es uralupo pn iytilibatsn ilacitilo pf oserusaem e hetdulc neise h,tem irte vnooitair asvs etlibih xde nyartnu ohcc a nemiets ylsarotcele ,elpma xre o,fee st(nemnrev o ngsieitr a fproebm uenvitceffe donsakaaL arepegaaT ytiroj a,mytiroj aymtr aeplgn i.sg. et(nemnrev o fgsoep y ftroebm uen hdt n)a)9791( fsorotacid no iwnstouc oeefwr e.Hedac ee dhgtnir uedcif fdol ehhci h)w.c t,esnoitilaoc 10 os le aeS Dalle eragoN.)7991( 8 f orebmu neh t,ytilibatsni segnahc )GPC De(dac ee dhrte vnooixelpm otcnemnrev ongi denehostab prodnedloW et al. e h ytdbl eshta e fseogatnecr eep hdt n;axed nGiPC esrev n nsihaici h,w)ES Ge(dac ehdc aree vdoegare vnaoitila orycotr agpninrevog .ytilibatsn if oerusaem lt anotetomtts etvnneimn ro e ifv aretooetohaggaftradreva-ed agcneidsU gniwoll oef hdteniat b eo,wselbair aEv S,GGP CeD hrt odf nganidne ptsnemnrevog delo ospeirtnu o5mc1o raft asdevlov nnioisserg ehrc a.Estlus enroisserg eS rLeOlpmis s,0s 70sD6eDi (mtmpuedcr e.stl nnanoItiio t t,a e sveroer resde 0 ahasr6rtcbueeoovdfo .seda ctenderef f e irhddotef ded ra)esw 0d8nDa stlu sneoRisse r egS:leL2bROaT .gnidnep Stnemnrevo Glato Tf onoitropor P as atnemtsevn Itnemnrevo Gs ielbaira vtnednepe dehT Intercept s06D s07D s08D GSE GPCD R 2 1. 1.60 7.43 6.32 1.30 0.23 - 0.303 (.316) (3.06) (2.66) (.55) (2.58) 2. 17.18 7.94 7.35 2.19 - -2.65 0.283 (9.08) (3.39) (3.13) (0.94) (3.04) 3. 5.713 6.93 7.15 1.83 0.20 -2.42 (1.12) (3.03) (3.17) (0.82) (2.88) (2.40) 0.339 tnemnrev ofngooitropo re phnteewt enboitalerr oecsrev ntinacifin g wiao shsstlus eerhT .ytilibats nliacitil o fpeoerg eed hdt ntanemtsev n oidtetacid egdnidneps ,noititepm olcarotce lheci h nwlied olmaciteroe htatnese r epswwoll otfa hnwI d nganidne ptsnemnrev o ngtocap mni ascecnerefe rlpacitil onpasitr adpesiral ohpguorht led or mupoe eo.kThtwo rcgimono cneur-gn onelocn ed hnsanoisic etdnemtsevni ees (sehcaorpp aralimi shti wnommo cn idn aelpmis dnnoassreP e w)899 1,inillebaT sginidne ptsnemnrev olg ltaa hgtnimus s yanboitalumuc ctab e fdeous sei hetrongi 11 Consistent government investment and productivity data are only available from the 1960, hence our regression results begin in 1960. Political data were updated using eikcaM dna esoR ,1991( )7991dna se t binesoWitcele www.agora.stm.it and .gro.upi.www 9