New Research: Government size, misallocation and the resource curse

Radek Stefanski [weebly.com](University of St. Andrews and external research associate of OxCARRE) writes on

Government size, misallocation and the resource curse

I do two things in this paper: First, using a panel of macro cross-country data, I demonstrate that the share of public sector employment is greater in resource-rich countries than in resource-poor countries even controlling for the size of other non-traded sectors. Second, I construct and calibrate a small, open economy model with two production sectors and a government sector in which (optimally) higher government employment shares emerge as a consequence of windfall-induced labor reallocation. I then use a model to compare the optimal and observed size of government in order to obtain an estimate of the extent of government misallocation and the impact it has on welfare and productivity.

Chapter available here [bcentral.cl],

published in Commodity Prices and Macroeconomic Policy, edited by Rodrigo Caputo and Roberto Chang. Santiago, Chile. 2015. Central Bank of Chile. See here [bcentral.cl].