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Legitimacy and the Cost of Government

Author

Listed:
  • Berggren, Niclas

    (Research Institute of Industrial Economics (IFN))

  • Bjørnskov, Christian

    (Department of Economics and Business)

  • Lipka, David

    (School of International Relations and Diplomacy)

Abstract
While previous research documents a negative relationship between government size and economic growth, suggesting an economic cost of big government, a given government size generally affects growth differently in different countries. As a possible explanation of this differential effect, we explore whether perceived government legitimacy (measured by satisfaction with the way democracy works) influences how a certain government size affects growth. On the positive side, a legitimate government may “get away” with being big since legitimacy can affect people’s behavioral response to, and therefore the economic growth cost of, taxation and government expenditures. On the negative side, legitimacy may make voters less prone to acquire information, which in turn facilitates interest-group oriented or populist policies that harm growth. A panel-data analysis of up to 30 developed countries, in which two different measures of the size of government are interacted with government legitimacy, reveals that legitimacy exacerbates a negative growth effect of government size in the long run. This could be interpreted as governments taking advantage of legitimacy in order to secure short-term support at a long-term cost to the economy.

Suggested Citation

  • Berggren, Niclas & Bjørnskov, Christian & Lipka, David, 2014. "Legitimacy and the Cost of Government," Working Paper Series 1045, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:1045
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    Cited by:

    1. Andrea Fracasso & Giuseppe Vittucci Marzetti & Diego Coletto, 2018. "Informal economy and extractive institutions," Review of Economics and Institutions, Università di Perugia, vol. 9(1).
    2. Bjornskov, Christian & Bogetic, Zeljko & Hillman, Arye & Popovic, Milenko, 2014. "Trust and Identity in a Small, Post-Socialist, Post-Crisis Society," EconStor Preprints 95968, ZBW - Leibniz Information Centre for Economics.
    3. Liliya Yakovleva & Oleg Dubinskiy & Yaroslav Kotenko, 2022. "Legitimacy On The Frontline. Public Policy In Ukraine Between Public Good And Private Interests," Baltic Journal of Economic Studies, Publishing house "Baltija Publishing", vol. 8(3).
    4. José Alves, 2021. "The Sinful Side of Taxation: Is it Possible to Satisfy the Government Hunger for Revenues While Promoting Economic Growth?," Hacienda Pública Española / Review of Public Economics, IEF, vol. 237(2), pages 85-109, June.
    5. Enrico Colombatto, 2014. "When is ordinary law-making tolerated?," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 11(1), pages 79-92, June.
    6. Abreham Adera, 2023. "Do migrant remittances have state de-legitimizing tendencies? A micro-survey based evidence from Africa," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(1), pages 2197323-219, December.

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    More about this item

    Keywords

    Legitimacy; Economic growth; Size of government; Confidence; Trust;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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