Growth in Government and Economic Growth: The Australian Experience

This paper examines the various sources of both the positive and the negative effects of growth in government on overall growth in the economy. A model that incorporates these different influences is developed and tested using time-series data for Australia. Australian economic growth is shown to respond positively to growth in government consumption of goods and services and growth in transfer payments. The excess burden of taxation is found to exert a significant drag on economic growth, as do increases in the excess burden of transfer expenditures and the influence of transfer payment recipients.