Empirical Public Economics
Edited by Attiat F. Ott and Richard J. Cebula
Chapter 7: Empirical Evidence on the Optimality and Productivity of Government Services in Sub-Saharan Africa
7 Empirical evidence on the optimality and productivity of government services in subSaharan Africa Rita Babihuga 1 Introduction In theory, the optimal mix of private and government activities has long been the subject of considerable debate. The most important theoretical contribution is provided by Robert Barro (1990), who shows that in the context of an endogenous growth model, government services are ‘optimally’ provided when their marginal productivity equals unity (the ‘Barro Rule’). Endogenous growth theory pioneered by the work of Romer (1986, 1990), Lucas (1988), Barro (1990) and Rebelo (1991) among others, points out mechanisms by which policy variables cannot only affect the level of output, but also steady state growth rates. Barro’s work endogenizes the relationship between growth and ﬁscal policies, identifying expenditures as productive and non-productive. Government spending is considered productive if it enters the private production process by contributing directly to output. Otherwise, it is considered unproductive and does not exert any lasting effect on the growth rate. The question of ‘optimality’ of government size has gained prominence in light of the observed growth of the public sector over time in virtually every region of the world. Empirical evidence shows that the governments of the world are much larger in size than they were 50 years ago. The debate among economists in this area focuses on the reasons for this growth as well as what the appropriate role and consequently the size of the government in the economy should be. There is evidence, however, that the high...
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