International factor mobility, government size and welfare

Anwar, Sajid, and Zheng, Mingli l. (2004) International factor mobility, government size and welfare. Australian Economic Papers, 43 (2). pp. 248-255.

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An examination of the available data reveals that the size of government varies considerably across time and countries. By making use of a simple general equilibrium model, this paper demonstrates that size of government is affected by the availability of capital and labour within an economy. Specifically, this paper utilises a model of a closed economy that produces one-private and one-public good. Both goods are produced by means of capital and labour. Production functions are subject to constant returns to scale and perfect competition prevails in all markets. The elasticity of substitution between the public and the private good is greater than unity and there is no international factor mobility in the initial equilibrium. The size of government is measured by total spending on the public good as a proportion of the total expenditure on the private and public goods. It is shown that capital (labour) inflow can decrease (increase) the size of government. Capital inflow increases welfare if the private good is relatively capital intensive whereas labour inflow increases welfare if the public good is relatively capital intensive.

Item ID: 5878
Item Type: Article (Research - C1)
ISSN: 1467-8454
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Date Deposited: 11 Feb 2010 05:46
FoR Codes: 14 ECONOMICS > 1402 Applied Economics > 140210 International Economics and International Finance @ 100%
SEO Codes: 91 ECONOMIC FRAMEWORK > 9103 International Trade > 910399 International Trade not elsewhere classified @ 100%
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