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

Saima Nawaz, M. Idrees Khawaja

Abstract


This study analyses the impact of political regime 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” while 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 depicts that the GDP per capita has a positive and
significant impact on the 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 pre-requisite to manage scare public
resources. JEC Classification: E13, O43, O47 Keywords: Political Regime,
Institutions, Government Size, Middle Income Countries

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DOI: https://doi.org/10.30541/v59i1pp.57-78

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