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Spring 2013

ISSN 0890-913X

Volume 28, Number 2

Categories: Spring 2013 | Politics

Budget Deficits, Economic Freedom, and Economic Growth in OECD Nations: P2SLS Fixed-Effects Estimates, 2003–2008

Richard J. Cebula, Jacksonville University

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TheJournalofPrivateEnterprise28(2),2013,75–96BudgetDeficits,EconomicFreedom,andEconomicGrowthinOECDNations:P2SLSFixed-EffectsEstimates,2003–2008RichardCebulaJacksonvilleUniversityAbstractThisstudyempiricallyinvestigatestheimpactsofcentralgovernmentbudgetdeficitsandeconomicfreedomonpercapitarealeconomicgrowthinOECDnationsovertheperiod2003–2008.Economicgrowthismeasuredbythepercentagegrowthrateofpurchasing-power-parityadjustedrealpercapitaGDP.WithinthecontextoftheFixedEffectsModel,paneltwostageleastsquares(P2SLS)estimationsusingasix-yearpaneldatasetfor29ofthe30theOECDmembernationsasof2008asagrouprevealthateconomicgrowthisadecreasingfunctionofhighercentralgovernmentbudgetdeficitsandanincreasingfunctionofeconomicfreedom.Itissuggestedthatgovernmentscanbestpromoterealeconomicgrowthbylimitingthesizeoftheirbudgetdeficits(relativetoGDP)andpursuepoliciesconsistentwithincreasingvariousformsofeconomicfreedom.JELCodes:P10,P16,F43,H61Keywords:PercentagepercapitarealGDPgrowth;Governmentbudgetdeficits;EconomicfreedomI.IntroductionSincetheendoftheGreatRecession,economicgrowthintheUnitedStateshasbeenanemic,andtheunemploymentrateintheUnitedStateshasremainedstubbornlyhigh,theextraordinarypoliciesoftheFederalReserveinpurchasingmassivequantitiesoftoxicassetsandU.S.Treasuryissuesnotwithstanding.Asthisslowgrowth-highunemploymentscenariohasplayedout,twoveryinterestingcontroversieshavearisen.ThefirstinvolvesthemassivesizeofU.S.federalbudgetdeficits,whethermeasuredindollarterms,inflation-adjusteddollars,orasapercentageofGDP,andtheargumentthatsuchdeficitsarebothunsustainableandhavecontributedtothestubbornlypoorperformanceoftheU.S.economy(El-Shagi,2010;Gartner,Griesbach,andJung,2011).Thesecond75

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Title	Budget Deficits, Economic Freedom, and Economic Growth in OECD Nations: P2SLS Fixed-Effects Estimates, 2003–2008
Authors/Creators:	Richard J. Cebula, Jacksonville University
Year:	2013
Volume:	28
Number:	2
Pages:	75 - 96
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-913X
Document Type:	Articles
Keywords:	Economic Freedom, OECD, Percentage per capita real GDP growth, Government Policy, budget deficits, Economic freedom

Citation:
Cebula, Richard J. / 2013. "Budget Deficits, Economic Freedom, and Economic Growth in OECD Nations: P2SLS Fixed-Effects Estimates, 2003–2008." The Journal of Private Enterprise, 28(2): 75-96.