Working Paper: CEPR ID: DP9657
Authors: Markus Brckner; Mark Gradstein
Abstract: This paper presents instrumental variables estimates of the effects of GDP per capita volatility on the size of government. We show that for a panel of 157 countries spanning more than half a century rainfall volatility has a significant positive effect on GDP per capita volatility in countries with above median temperatures. In these countries rainfall volatility has also a significant positive reduced-form effect on the GDP share of government. There is no significant reduced-form effect in the sample of countries with below median temperatures where rainfall volatility has no significant effect on GDP per capita volatility. Using rainfall volatility as an instrumental variable in the sample of countries with above median temperatures yields that greater GDP per capita volatility leads to a significantly higher GDP share of government.
Keywords: volatility; government size
JEL Codes: E6; H1; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Rainfall volatility (Q54) | GDP per capita volatility (E39) |
| GDP per capita volatility (E39) | Government size (H11) |
| Rainfall volatility (Q54) | Government size (H11) |
| GDP per capita volatility (E39) | Larger share of government consumption expenditures in GDP (H59) |
| Larger government size (H19) | GDP per capita volatility (E39) |