Abstract
ABSTRACT Scully curves estimating growth-maximizing public-sector size are constructed using panel data covering 17 industrialized nations from 1870–2016. Results suggest that government expenditure-to-GDP ratios between 24% and 32% were historically growth maximizing. Instrumental variable estimates support the quadratic Scully curve relationship as causal over this period. We allow for a shifting Scully curve and find that the economic growth-maximizing size changed throughout history, from 11% pre-WWI to 21% post-WWII and 41% following the OPEC crisis. The Scully curve disappears after the mid-1990s suggesting a structural change in the relationship between central government expenditure and economic growth.
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