Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324984 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11993
Publisher: 
CESifo GmbH, Munich
Abstract: 
We examine the impact of government size on economic fluctuations and the role of fiscal policy in promoting macroeconomic stability in the period 1980-2024. The results indicate that indirect taxes, capital taxes, and social security contributions (as a percentage of GDP) are associated with lower output volatility, whereas direct taxes tend to amplify it, particularly over longer horizons. On the expenditure side, current spending – especially public wages and interest payments – also exerts a stabilising influence. We further provide new estimates of output losses from the two most severe recent recessions in the EU27 – the Great Recession and the COVID-19 pandemic – and find evidence that the severity of these losses may be linked to the scale of the government, both before and after the crises.
Subjects: 
government size
fiscal policy
macroeconomic stability
output losses
JEL: 
E32
E62
H20
Document Type: 
Working Paper
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