Abstract

The purpose of this research is to study the impact of government size on economic growth in three OECD countries, namely the USA, Canada, and the United Kingdom. A standard growth model is developed in which capital, labor, government size, and tax revenue are included as the explanatory variables. Annual time series data from 1975 to 2012 are used to estimate the model. Since the initial estimation suffered from an autocorrelation problem, the model is estimated using an AR(1) term. The overall estimated results suggest that the size of government does not have any significant positive effect on economic growth. In some instances (United Kingdom and Canada), it does exhibit a negative effect, presumably due to a large crowding out effect. Likewise, an increase in tax revenue did not exhibit any negative effect in the United Kingdom and Canada, but it does have a significant negative effect on GDP growth in the United States economy.

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