The Impact of Political Regime and Institutions on Government Size in Middle-Income Countries

Saima Nawaz, Idrees Khawaja

Abstract


This study analyses the impact of political regimes and
institutions on government size while controlling for socio-economic
factors for a group of 56 middle income countries over the period
1986-2014. The empirical analysis shows that the institutional quality
index has a negative impact on government size. Furthermore,
institutions have a positive impact on “productive” government spending,
while having a negative impact on “unproductive” government spending.
The analysis also shows that institutional democracy, political regime
and stability of political system are the key political determinants of
government size. A stable democratic system backed by well-defined
institutions could help to manage government size. It ensures
transparency and political contestability which leads to control over
the use of public resources. The analysis further shows that the GDP per
capita has a positive and significant impact on government size at all
stages of development. It implies that there is a natural growth of
government size due to economic development. This analysis provides
useful insights for policy makers to manage government size. A stable
political system supported by good quality institutions is a
prerequisite to managing scarce public resources. JEL Classification:
E13, O43, O47 Keywords: Political Regime, Institutions, Government Size,
Middle Income Countries

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DOI: https://doi.org/10.30541/v59i2pp.199-220

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