Showing papers in "Southern Economic Journal in 1992"
10,424Â citations
848Â citations
424Â citations
TL;DR: In this article, the authors discuss the meaning of the market process and the emergence of the Austrian view in economics, and discuss some related issues emerging from the Austrian approach, such as self-interest and the new bashing of economics.
Abstract: Part I: The Market Process Approach 1. Market Process Theory: In Defence of the Austrian Middle Ground 2. The Meaning of the Market Process Part II: The Emergence of the Austrian View 3. The Austrian School of Economics 4. Carl Menger and the Subjectivist Tradition in Economics 5. Menger, Classical Liberalism and the Austrian School of Economics 6. The Economic Calculation Debate: Lessons for Austrians 7. Ludwig von Mises and Friedrich von Hayek: The Modern Extension of Austrian Subjectivism Part III: Some New Explorations in the Austrian Approach 8. Prices, the Communication of Knowledge, and the Discovery Process 9. Economic Planning and the Knowledge Problem 10. Knowledge Problems and their Solutions: Some Relevant Distinctions 11. Welfare Economics: A modern Austrian Perspective Part IV: Some Related Issues Emerging from the Austrian Approach 12. Self-Interest and the New Bashing of Economics 13. Discovery, Private Property, and the Theory of Justice
371Â citations
TL;DR: In this paper, a number of eminent contributors analyze the politics of adjustment in thirteen countries and nineteen governments, drawing comparisons not only across the full set of cases but also within clusters selected to clarify specific issues.
Abstract: The acute economic pressures of the 1980s have forced virtually all of Latin America and Africa and some countries in Asia into painful austerity programs and difficult economic reforms. Scholars have intensively analyzed the economics of this situation, but they have given much less attention to the political forces involved. In this volume a number of eminent contributors analyze the politics of adjustment in thirteen countries and nineteen governments, drawing comparisons not only across the full set of cases but also within clusters selected to clarify specific issues. Why do some governments respond promptly to signs of economic trouble, while others muddle indecisively for years? Why do some confine their response to temporary macroeconomic measures, while others adopt broader, even sweeping, programs of reform? What leads some countries to experiment with heterodox approaches, while most, however reluctantly, pursue orthodox courses? Why, confronted with intense political protest, have some governments persisted while others have altered or abandoned course? The answers to these questions are political, not economic, and they are examined here by Thomas M. Callaghy, Stephan Haggard, Miles Kahler, Robert R. Kauman, Joan M. Nelson, and Barbara Stallings.
270Â citations
TL;DR: The House of Morgan as discussed by the authors is the most ambitious history ever written about an American banking dynasty, tracing the astonishing path of the J.P. Morgan empire with the sweep of an epic novel.
Abstract: The most ambitious history ever written about an American banking dynasty, The House of Morgan traces the astonishing path of the J.P. Morgan empire with the sweep of an epic novel. "Brilliantly researched and written" (The Wall Street Journal), the hardcover was recently named winner of the 1990 National Book Award for Nonfiction. 32 pages of photographs.
220Â citations
TL;DR: In this paper, the authors draw insights from theory and empirical data, from the experience of closed and open economies worldwide, and from detailed case studies, and explore the susceptibility of American corporations to economic downturns; the origins of banking panics; and the behavior of financial markets during periods of crisis.
Abstract: Warnings of the threat of an impending financial crisis are not new, but do we really know what constitutes an actual episode of crisis and how, once begun, it can be prevented from escalating into a full-blown economic collapse? Using both historical and contemporary episodes of breakdowns in financial trade, contributors to this volume draw insights from theory and empirical data, from the experience of closed and open economies worldwide, and from detailed case studies. They explore the susceptibility of American corporations to economic downturns; the origins of banking panics; and the behavior of financial markets during periods of crisis. Sever papers specifically address the current thrift crisis including a detailed analysis of the over 500 FSLIC-insured thrifts in the southeast and seriously challenge the value of recent measures aimed at preventing future collapse in that industry. Government economists and policy makers, scholars of industry and banking, and many in the business community will find these timely papers an invaluable reference."
213Â citations
TL;DR: In this paper, the authors examined circumstances under which this empirical pattern could be observed and examined the implications for brand-name price levels, and for the brand name price response to entry, of health sector trends that may have the effect of expanding the size of the cross-price-sensitive segment of the market.
Abstract: Empirical studies suggest that entry of generic competitors results in minimal decreases or even increases in brand-name drug prices as well as sharp declines in brand-name advertising This paper examines circumstances under which this empirical pattern could be observed The analysis focuses on models where the demand for brand-name pharmaceuticals is divided into two segments, only one of which is cross-price-sensitive Brand-name firms are assumed to set price and advertising in a Stackelberg context; they allow for responses by generic producers but the latter take decisions by brand-name f inns as given Brand-name price and advertising responses to entry are shown to depend upon the properties of the reduced-form brand-name demand function Conditions for positive price responses and negative advertising responses are derived We also examine the implications for brand-name price levels, and for the brand-name price response to entry, of health sector trends (such as increasing HMO enrollments) that may have the effect of expanding the size of the cross-price-sensitive segment of the market The paper concludes with a review of recent empirical research and suggestions for future work on the effects of generic entry
201Â citations
TL;DR: The roots of economic welfare: productivity growth income distribution employment and unemployment as discussed by the authors, and chronic aches and pains: the trade deficit inflation, health care the budget deficit the embattled Fed the dollar free trade and protectionism Japan.
Abstract: Part 1 The roots of economic welfare: productivity growth income distribution employment and unemployment. Part 2 Chronic aches and pains: the trade deficit inflation. Part 3 Policy problems: health care the budget deficit the embattled Fed the dollar free trade and protectionism Japan. Part 4 Financial follies: the savings and loan scandal corporate finance global finance. Part 5 American prospects: happy ending hard landing drift.
142Â citations
TL;DR: Mayer et al. as discussed by the authors studied the Federal Reserve and its institutional environment towards a broader public choice perspective and proposed a theory of FOMC dissent voting with evidence from the time series.
Abstract: Preface 1. Introduction Thomas Mayer 2. Studying the Fed: towards a broader public choice perspective Thomas Willett 3. The Federal Reserve reaction function: a specification search Salwa Khouri 4. Corporate profitability as a determinant of restrictive monetary policy: estimates for the post-war United States Gerald Epstein and Juliet Schor 5. Federal reserve behavior since 1980: a financial market perspective William Melton and V. Vance Roley 6. The Federal Reserve and its institutional environment: a review Michael Munger and Brian Roberts 7. The political economy of monetary policy Robert Hetzel 8. Political monetary cycles Nathaniel Beck 9. Congress and the Fed: Why the dog does not bark in the night Nathaniel Beck 10. The Federal Reserve as a political power James Pierce 11. Monetary policy and political economy: the Federal Reserve and the Bank of Japan Thomas Cargill and Michael Hutchinson 12. A positive analysis of the policymaking process at the Federal Reserve Raymond Lombra and Nicholas Karamouzis 13. A theory of FOMC dissent voting with evidence from the time series Thomas Havrilesky and Robert Schweitzer 14. Explaining FOMC members' votes John Gildea 15. Fed behaviour and X-efficiency theory: toward a general framework Harinder Singh and Roger Frantz 16. Minimizing regret: cognitive dissonance as an explanation of FOMC behavior Thomas Mayer 17. The discount window William Poole 18. Leaning against the wind: the behavior of the money stock in recession and recovery, 1953-8 Elmus Wicker 19. Bureaucratic self-interest as an obstacle to monetary reform Edward Kane Index.
116Â citations
TL;DR: A number of reasons for the sudden jump in the U.S. current account deficit have been suggested, ranging from doing nothing to radically altering the country's commercial policy, with little attention paid to comparing the explanatory power of the underlying hypotheses.
Abstract: Most observers consider large U.S. current account deficits to have been the main contributor to world macroeconomic imbalance in the 1980s. The implications of continuing U.S. current account deficits of 100 to 200 billion dollars per year are troubling. Other countries must adjust to the scarcity of capital as the United States acquires a significant portion of the world's savings. At the same time U.S. companies seek protection from "unfair" foreign competition as foreign companies increase market share in the United States. Determining the source of the problem, and designing the correct solution, are therefore major objectives of economic research. Policymakers and economists have suggested a number of reasons for the sudden jump in the current account deficit. Different schools of thought have therefore proposed different policy responses, ranging from doing nothing to radically altering the country's commercial policy. Debate has centered on the proposed policies, with little attention paid to comparing the explanatory power of the underlying hypotheses.
TL;DR: The transition from stabilization to sustained growth in Bolivia, Juan Antonio Morales: comments by Peter Bernholz comments by Juan L. Cariaga general discussion as discussed by the authors, and Chile's experience with stabilization revisited.
Abstract: Part 1 The transition from stabilization to sustained growth in Bolivia, Juan Antonio Morales: comments by Peter Bernholz comments by Juan L. Cariaga general discussion. Part 2 Chile's experience with stabilization revisited, Vittorio Corbo and Andres Solimano: comments by Sebastian Edwards comments by Leonardo Leiderman general discussion. Part 3 From sharp disinflation to hyperinflation, twice - the Argentine experience, 1985-1989, Daniel Heymann: comments by Jose Juis Machinea comments by Simon Teitel general discussion. Part 4 From inertia to megainflation - Brazil in the 1980s, Eliana Cardoso: comments by Persio Arida comments by Juan Carlos de Pablo general discussion. Part 5 The inflation-stabilization cycles in Argentina and Brazil, Miguel A. Kiguel and Nissan Liviatan: comments by Mario I. Blejer comments by Assaf Razin general discusion. Part 6 The costly transition from stabilization to sustainable growth - Israel's case, Michael Bruno and Leora (Rubin) Meridor: comments by Stanley Fischer general discussion. Part 7 Mexico beyond the debt crisis - toward sustainable growth with price stability, Guillermo Ortiz: comments by Fernando Clavijo comments by Sylvia Piterman general discussion. Part 8 Premature liberalization, incomplete stabilization - the Ozal decade in Turkey, Dani Rodrik: comments by Sweder van Wijnbergen general discussion. Part 9 The Yugoslav path to high inflation, Velimir Bole and Mitja Gaspari: comments by Neven Mates comments by Domenico Mario Nuti general discussion. Part 10 Panel discussion - what's new since Toledo?
TL;DR: In this paper, a critique of Reaganomics attempts to provide alternatives to both the supply experiments of the 1980s and neoliberal strategies of austerity, and presents arguments for economic democracy with a worker-oriented blueprint for improving productivity, growth, employment and economic justice.
Abstract: This critique of Reaganomics attempts to provide alternatives to both the supply experiments of the 1980s and neoliberal strategies of austerity. It presents arguments for economic democracy with a worker-oriented blueprint for improving productivity, growth, employment and economic justice.
TL;DR: Slemrod et al. as mentioned in this paper presented the first systematic examination of the actual effects of the Tax Reform Act of 1986, the most important U.S. income tax reform of the last four decades.
Abstract: "Do Taxes Matter?" is the first systematic examination of the actual effects of the Tax Reform Act of 1986, the most important U.S. income tax reform of the last four decades. It presents basic information on and an analysis of a variety of different aspects of economic behavior in order to discover whether the observed changes coincide with the predictions of standard public finance models. Prior to implementation of the new law, supporters and opponents made numerous forecasts about its effect on savings, corporate investment, and other major determinants of the country's economic health. The general finding of these original contributions is that the effects of tax reform turned out to be smaller than had been anticipated.Commissioned by the Office of Tax Policy Research of the University of Michigan, eight of the studies focus on different sectors of the economy, reviewing the predictions and carefully analyzing the evidence to determine actual effects. The ninth study draws together the results to find lessons for future changes in tax policy. Joel Slemrod is Professor of Business Economics and Public Policy and Director of the Office of Tax Policy Research at the University of Michigan.Contents: The Economic Impact of Tax Reform Act of 1986, Joel Slemrod. Investment, Tax Policy, and the Tax Reform Act of 1986, Alan J. Auerbach, Kevin Hassett. The Impact of the 1986 Tax Reform on Personal Saving, Jonathan Skinner, Daniel Feenberg. Effects of the Tax Reform Act of 1986 on Corporate Financial Policy and Organizational Form, Roger H. Gordon, Jeffrey K. MacKie-Mason. Taxation and Housing Markets: Preliminary Evidence on the Effects of Recent Tax Reforms, James M. Poterba. The Impact of the Tax Reform Act of 1986 on Foreign Direct Investment to and from the United States, Joel Slemrod. The Impact of Tax Reform on Charitable Giving: A 1989 Perspective, Charles T. Clotfelter. The Impact of the Tax Reform Act of 1986 on State and Local Fiscal Behavior, Paul N. Courant, Edward M. Gramlich. Foreign Responses to U.S. Tax Reform, John Whalley. Lessons for Tax Reform, Henry J. Aaron.
TL;DR: This chapter discusses issues in health insurance, including pricing and imperfections in the medical care market place, political economy of hospital financing, and is there a Sisyphus syndrome in health care?
Abstract: I Issues in health insurance- 1 Pricing and imperfections in the medical care market place- 2 How can we prevent cream skimming in a competitive health insurance market? The great challenge for the '90s- 3 The impact of utilization review on costs and utilization- 4 The normative and positive economics of minimum health benefits- II Criteria for allocating health care resources- 1 Cost-effectiveness analysis of strategies for screening prostatic cancer- 2 The validity of the MIMIC health index - some empirical evidence- 3 Welfare economics and cost-utility analysis- III Administrative and market allocation in health care- 1 Excess demand and patient selection for heart and liver transplantation- 2 Non-price allocative procedures: Scottish solutions to a National Health Service problem- 3 Priorities among waiting list patients- 4 Consumer information, price, and nonprice competition among hospitals- IV Health care in the political arena- 1 Cost containment in health care Justification and consequences- 2 Political economy of hospital financing- 3 A pooled cross-sectional analysis of the health care expenditure of the OECD countries- 4 Is there a Sisyphus syndrome in health care?- 5 Deaths from gastrointestinal cancer in Mexico: Probable cause for water sampling- Index of names- Index of subjects
TL;DR: In this paper, the authors argue that the conventional economic case for the all-volunteer approach fails to recognize that the relative difference between the cost of the all volunteer approach and the draft depends on the percentage of the eligible population recruited into the military and the dead-weight loss associated with conventional taxation.
Abstract: Economists are in almost universal agreement that the all-volunteer approach to recruiting military personnel is more efficient than the draft.' Several related considerations form the basis for this agreement. First, the draft imposes a discriminatory tax on recruits equal to the difference between their market wages and the below-market military wage (plus a compensating differential for serving in the military). Second, below-market pricing of personnel under the draft leads to a military with "too many" recruits. Third, the all-volunteer approach attracts those recruits with the lowest opportunity costs and hence secures a given number of recruits at less cost. These standard economic arguments for the all-volunteer approach over the draft have been heavily influenced by Hansen and Weisbrod [7] and Oi [10]. The purpose of this paper is to argue that under certain conditions the above considerations fail to make a compelling case for the all-volunteer approach over the draft. The conventional economic case for the all-volunteer approach fails to recognize that the relative difference between the cost of the all-volunteer approach and the draft depends on the percentage of the eligible population recruited into the military and the dead-weight loss associated with conventional taxation. As the number of recruits increases relative to the eligible population, the advantage of being able to discriminate between high and low opportunity cost recruits diminishes. Also, the larger
TL;DR: Chappell et al. as discussed by the authors used industry-level census data to examine the role of industry characteristics as entry barriers and improved upon the approach of Chappell and Kimenyi.
Abstract: Numerous empirical studies have applied a variety of approaches and data to examine the market entry of firms across industries. One branch of studies, which is the focus of the present paper, uses industry-level census data to examine the role of industry characteristics as entry barriers. This research features estimation results from very large samples that cover a wide range of industries. Examples include McGuckin [19], Orr [20], Gorecki [9; 10], Duetsch [6; 7], Kessides [14], and Chappell, Kimenyi, and Mayer [5] (henceforth referred to as Chappell et al. [5]). The above studies use net entry (e.g., the number of firms in 1977 minus the number of firms in 1972) as a measure of the number of new entrants in a given industry.' With the exception of Chappell et al., classical regression models of net entry have been the tool of analysis. Chappell et al. point out that because net entry data are integer-valued, and thus deviate from classical regression assumptions, the statistical specification of net entry calls for a discrete probability distribution. Chappell et al. base estimation on a univariate Poisson distribution. In the present paper we consider another aspect of the data, and improve upon the approach of Chappell et al. Observations on net entry actually reflect the difference between unobservable entry and exit flows, and as such contain information on both entry and exit. While this point is well understood, the focus of net entry studies has been entry, and the approach has been to model the data as a function of entry alone. Unfortunately, the failure to incorporate the true informational content of the data into the estimation clouds the results. In particular, neglecting the dependence of the data on exits can produce misleading estimates of the entry parameters. Small values of net entry, for example, might merely reflect a balancing of strong entry and exit flows
TL;DR: Goldin and Rockoff as mentioned in this paper studied the labor markets in manufacturing and agriculture during the American Civil War and found that the labor market was characterized by two types of forces: wage increases and credit rationing.
Abstract: Introduction, Claudia Goldin and Hugh Rockoff Two Appreciations, Stanley L. Engerman, Donald N. McCloskey I. Labor Markets in Manufacturing and Agriculture 1. The Market for Manufacturing Workers during Early Industrialization: The American Northeast, 1820 to 1860, Kenneth L. Sokoloff and Georgia C. Villaflor 2. Wages, Prices, and Labor Markets before the Civil War, Claudia Goldin and Robert A. Margo 3. Structural Change in the Farm Labor Force: Contract Labor in Massachusetts Agriculture, 1750-1865, Winifred B. Rothenberg 4. Farm Tenancy in the Antebellum North, Donghyu Yang II. Markets in Capital and Credit 5. Regional Interest Rates in Antebellum America, Howard Bodenhorn and Hugh Rockoff 6. Money versus Credit Rationing: Evidence for the National Banking Era, 1880-1914, Michael D. Bordo, Peter Rappoport, and Anna J. Schwartz 7. Precedence and Wealth: Evidence from Nineteenth-Century Utah, David W. Galenson and Clayne L. Pope 8. The Wealth of Women, 1774, Alice Hanson Jones III. The Demography of Free and Slave Populations 9. Adult Mortality in America before 1900: A View from Family Histories, Clayne L. Pope 10. Toward an Anthropometric History of African-Americans: The Case of the Free Blacks in Antebellum Maryland, John Komlos 11. The Slave Family: A View from the Slave Narratives, Stephen Crawford 12. The Fertility Transition in the United States: Tests of Alternative Hypotheses, Richard H. Steckel 13. Trading Quantity for Quality: Explaining the Decline in American Fertility in the Nineteenth Century, Jenny Bourne Wahl IV. Political Economy 14. The Profitability of Early Canadian Railroads: Evidence from the Grand Trunk and Great Western Railway Companies, Ann M. Carlos and Frank Lewis 15. The Rise and Fall of Urban Political Patronage Machines, Joseph D. Reid, Jr., and Michael M. Kurth 16. Dividing Labor: Urban Politics and Big-City Construction in Late-Nineteenth-Century America, Gerald Friedman
TL;DR: The market as an isolated causal process as discussed by the authors is a metaphorical ground for realism in Austrian economics between the wars, and it can be viewed as an Evolutionary Theory of Social Institutions.
Abstract: 1 Austrian Economics Between the Wars: Some Historiographical Problems.- 2 The Market as an Isolated Causal Process: A Metaphysical Ground for Realism.- 3 Kirzner's Theory of Entrepreneurship-A Critique Martin Ricketts.- 4 Subjectivism, Explanation and the Austrian Tradition.- 5 Market Co-ordination.- 6 Orders and Organizations: Toward an Austrian Theory of Social Institutions.- 7 On the Possibility of Austrian Welfare Economics.- 8 Turning Austrian Economics into an Evolutionary Theory.- 9 Afterword: Austrian Economics for the Twenty-First Century.- 10 Afterword: Appraising Austrian Economics: Contentions and Misdirections.
TL;DR: Baranzini and Scazzieri as discussed by the authors proposed a framework for structural analysis of economic structures and institutions in political economy, based on the circular theory of production and the theory of economic equilibrium.
Abstract: List of figures List of contributors Preface Acknowledgements Introduction Mauro Baranzini and Roberto Scazzieri Part I. Structure and Institutions in Political Economy: 1. Economic structure and political institutions: a theoretical framework Lorenzo Ornaghi Part II. Single-Period Relationships and Economic Theory: 2. Economic structure and the theory of economic equilibrium Takashi Negishi 3. Structure and change within the circular theory of production Heinrich Bortis Part III. Structural Dynamics and the Analysis of Economic Change: 4. Specification of structure and economic dynamics Michael A. Landesmann and Roberto Scazzieri 5. Vertical integration, growth and sequential change Jean Magnan de Bornier 6. The structural theory of economic growth Harald Hagemann Part IV. A Framework for Structural Analysis: 7. Economic theory and industrial evolution Michio Morishima 8. Production process and dynamic economics Nicholas Georgescu-Roegen 9. Economic structure: analytical perspectives Mauro Baranzini and Roberto Scazzieri Name index Subject index.
TL;DR: The results of the NBER Economics of Aging Program address issues that are of particular importance to the well-being of individuals as they age and to a society at large that is composed increasingly of older persons.
Abstract: The original essays and commentary in this volume the third in a series reporting the results of the NBER Economics of Aging Program address issues that are of particular importance to the well-being of individuals as they age and to a society at large that is composed increasingly of older persons. The contributors examine social security reform, including an analysis of the Japanese system; present the startling finding that the vast majority of people choose the wrong accumulation strategies for their pension plans; explore the continuing consequences of the decline in support of parents by children in the postwar period; investigate the relation between nursing home stays and the source of payment for the care; and offer initial findings on the implications of differences between developed and developing countries for understanding aging issues and determining appropriate directions for research."
TL;DR: In this article, the political economy of military effort in the WTO, D.Nelson and R.Smith defence spending in France - the price of independence, C.Schmidt, L.Pilandon and J.Zimmerman Swedish military expenditures and armed neutrality, A.Mintz, M.Ward and S.Niioka.
Abstract: United States defence expenditure trends and analysis, R.Looney and S.Mehay the political economy of military effort in the WTO, D.Nelson defence spending in the United Kingdom, R.Smith defence spending in France - the price of independence, C.Schmidt, L.Pilandon and J.Aben West German demand for defence spending, D.Fritz-Assmus and K.Zimmerman Swedish military expenditures and armed neutrality, J.Murdoch and T.Sandler defence spending in Israel, A.Mintz, M.Ward and S.Bichler military security and the economy - defence expenditure in India and Pakistan, S.Deger and S.Sen military expenditures in Argentina, Chile and Peru, T.Scheetz Japanese defence spending, S.Niioka.
TL;DR: In this paper, the authors consider the infinite repeated Prisoners' dilemma (RPD) and show that the Nash equilibrium may not always be the appropriate Nash equilibrium for the RPD.
Abstract: A large literature which attempts to explain how cooperative outcomes can be supported in the repeated Prisoners' Dilemma (RPD) has emerged in recent years. An interesting branch of this literature has analyzed the infinite RPD as a game in which two "metaplayers" choose a strategy which is implemented by a finite automaton, or Moore machine. This line of research has been especially interesting because it allows us to capture the notion of "bounded" rationality in the players. Also, the use of these machines as devices to implement strategies permits us to quantify the notion of strategic complexity. We can then apply the idea that complexity is costly to the analysis, and the results have proven very interesting. So far, the work in this area has applied the concepts of Nash equilibrium and evolutionary stability in determining what reasonable outcomes are in these games. However, it has frequently been that pointed out these equilibrium concepts may be either too restrictive or not restrictive enough to be useful in analyzing the infinitely repeated Prisoners' Dilemma. That is, if we use the Nash equilibrium as the appropriate equilibrium concept, the set of equilibrium outcomes is infinitely large. On the other hand, if we require the equilibrium to be evolutionarily stable, the set of such equilibrium outcomes is frequently empty. It has been suggested that the requirement for evolutionary stability may be too stringent a criterion. The purpose of this essay is to examine what happens in these games in an evolutionary framework under various conditions. The results of the simulations I performed and report here indicate certain combinations of strategies may exist which, although not evolutionarily stable in the sense of Maynard Smith [14], prove to be invasion-proof against permissible mutant strategies. This is akin to saying a set of possible strategies may exist which cannot be invaded, but neither the individual strategies nor the mixed strategy represented by the population is evolutionarily stable. We can imagine the mix of strategies changing as various mutants attempt to invade the population but the set of strategies remaining the same as the one with which we started. In fact, it may well be the case that this set of strategies will not last forever, but it may last for a very long time. I formalize this idea later in the essay. In order to test the robustness of
TL;DR: A number of empirical investigations have attempted to measure the effect of the size of the public sector on overall economic growth as discussed by the authors, but the outcome of both types of analysis has been inconclusive.
Abstract: Whether changes in public expenditure growth help predict changes in national income growth (and/or vice versa) remains an important issue of sustained interest in the empirical public finance literature. In recent years, attention has mainly been confined to two specific areas, namely, estimation of the impact of the public sector on output growth (by means of regression analysis) and causality testing. Unfortunately, the outcome of both types of analysis has been inconclusive. Focussing on the impact studies, we note that a number of empirical investigations have attempted to measure the effect of the size of the public sector on overall economic growth. For instance, Ram [19], utilizing a two-sector model, found that growth of government size has a positive effect on economic growth. Landau [14; 15], however, presented opposite evidence, indicating that the government sector expansion led to a decline in output growth for many DCs and LDCs since 1960. In a recent study, Barth, Keleher and Russek [4] estimated variants of Ram's models with data for 30 countries. Their empirical results largely support a negative relationship between the scale of government and aggregate economic activity. Furthermore, using the Hausman procedure, they rejected the hypothesis that the independent variables (namely, real government spending or other measures of the scale of the government, depending on the specification) in the regression equations are exogenous. This strongly suggests that the conclusions reached by