Firm Profits and Government Activity: An Empirical Investigation
By: Jovanović, Branimir.
Contributor(s): Jolakoski, Petar | Madjoska, Joana | Stojkoski, Viktor | Tevdovski, Dragan.
Material type:
BookSeries: wiiw Working Papers: 194Publisher: Wien : Wiener Institut für Internationale Wirtschaftsvergleiche (wiiw), 2021Description: 31 S., 13 Tables and 1 Figure, 30cm.Subject(s): firm profits | government size | government effectivenessCountries covered: Austria | Belgium | Bulgaria | Croatia | Cyprus | Czechia | Denmark | Estonia | Europe | European Union | Finland | France | Germany | Greece | Hungary | Ireland | Italy | Latvia | Lithuania | Luxembourg | Malta | Netherlands | Norway | Poland | Portugal | Romania | Slovakia | Slovenia | Spain | Sweden | Switzerland | United Kindom | EFTA | EUwiiw Research Areas: Macroeconomic Analysis and PolicyClassification: C23 | H11 | H50 Online resources: Click here to access online Summary: If firm profits rise to a level far above than what would have been earned in a competitive economy, this might give the firms market power, which might in turn influence the activity of the government. In this paper, we perform a detailed empirical study on the potential effects of firm profits and markups on government size and effectiveness. Using data on 30 European countries for a period of 17 years and an instrumental variables approach, we find that there exists a robust relationship between firm gains and the activity of the state, in the sense that higher firm profits reduce government size and effectiveness. Even in a group of developed countries, such as the European countries, firm power may affect state activity.
| Item type | Current library | Call number | Status | Date due | Barcode | |
|---|---|---|---|---|---|---|
| Paper | WIIW Library | 5.700/194 (Browse shelf(Opens below)) | Available | 1000010005598 |
If firm profits rise to a level far above than what would have been earned in a competitive economy, this might give the firms market power, which might in turn influence the activity of the government. In this paper, we perform a detailed empirical study on the potential effects of firm profits and markups on government size and effectiveness. Using data on 30 European countries for a period of 17 years and an instrumental variables approach, we find that there exists a robust relationship between firm gains and the activity of the state, in the sense that higher firm profits reduce government size and effectiveness. Even in a group of developed countries, such as the European countries, firm power may affect state activity.
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