Government size, public debt and real economic growth: a panel analysis

Purpose The purpose of this paper is to examine the impact of the size of government and public debt on real economic growth, for a panel of 175 countries around the world. Design/methodology/approach The paper utilizes the fixed‐effects and random‐effects techniques to estimate the panel regressions. Findings The results indicate that both the size of government and the extent of government indebtedness have negative effects on economic growth. Practical implications The findings suggest that the authorities ought to take the necessary steps to curtail excessive government spending and public debts, in order to promote economic growth. Originality/value The contribution of the paper is its application of the fixed‐ and random‐effects techniques in modeling the relation of real economic growth to the size of government and public debt, for a panel of 175 countries around the world.