Cyclical Bias in Government Spending: Evidence from the OECD.

This paper studies the role of business cycles in the phenomenon of increasing government spending/GDP ratios in the OECD countries. Using a panel data set covering the 1975-1995 period, the main finding is that the prolonged rise in this ratio is linked to a cyclical bias; the spending/GDP ratio increased during recessions and stayed approximately constant during expansions. Also analyzed are the cyclical changes in the composition of government spending (goods and services, transfers and subsidies, and capital expenditure), in tax revenues, and a possible link between the cyclical bias and an index of government weakness.