Department of Economics and Business Economics

Christian Bjørnskov

Does Big Government Hurt Growth Less in High-Trust Countries?

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DOI

Social trust is linked to both public sector size and to economic growth, thereby helping to explain how some countries combine high taxes with high levels of economic growth. This paper examines if social trust insulates countries against the negative effects of public sector size on growth, documented in several studies. We note that the effect is theoretically ambiguous. In panel data from 66 countries across 40 years, we find no robust evidence of insulation effects: when excluding countries with uncertain trust scores, our results suggest that big government hurts growth also in high-trust countries, and that the mechanism is by lowering private investments. (JEL H10, O11, P16, Z10).

Original languageEnglish
JournalContemporary Economic Policy
Number of pages16
ISSN1074-3529
DOIs
Publication statusE-pub ahead of print - Mar 2020

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