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Advisor(s)
Abstract(s)
We examine the impact of government size on economic fluctuations and the role of fiscal
policy in promoting macroeconomic stability in the period 1980-2024. The results
indicate that indirect taxes, capital taxes, and social security contributions (as a percentage
of GDP) are associated with lower output volatility, whereas direct taxes tend to amplify
it, particularly over longer horizons. On the expenditure side, current spending –
especially public wages and interest payments – also exerts a stabilising influence. We
further provide new estimates of output losses from the two most severe recent recessions
in the EU27 – the Great Recession and the COVID-19 pandemic – and find evidence that
the severity of these losses may be linked to the scale of the government, both before and
after the crises.
Description
Keywords
Government size Fiscal policy Macroeconomic stability Output losses
Pedagogical Context
Citation
António Afonso, José Alves e Frederico Silva Leal (2025). "Government scale as a stabilizer: effects on output volatility and losses ". REM Working paper series, nº 0385/2025
Publisher
REM – Research in Economics and Mathematics