Economic performance, government size, and institutional quality

This paper studies the empirical link between government size, institutions and economic activity using a panel of 140 countries over 40 years. Our results, robust under different econometric techniques, show mostly a negative effect of government size on output, while institutional quality has generally a positive impact. Moreover, the detrimental effect of government size on economic activity is stronger the lower institutional quality, and the positive effect of institutional quality on output increases with smaller government sizes.