Public finances, governance control and economic growth: a macroeconomic history approach

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The size of the public sector is an important tool in public governance. Public sector size may fuel both economic growth and political influence over the economy.
By compiling and processing data from different sources of public accounts the paper aims at mapping the development of key financial indicators for the Norwegian central government sector during the transition period from the mid 19th to the mid 20th century. The data enable us to give measures of the size of the public sector alone and compared to the overall economy.
It is found that the sector started its continuous growth before politicians deliberately started to increase the sector’s size of the total economy. The paper also finds that an increase of the public sector often, but not always, reflects political economy regimes. Persistent growth in public finances as a tool for economic policy making did not take place before the introduction of the social-democratic regime in 1935.
The paper also concludes that economic growth started before the growth in the public sector, suggesting that public sector growth might as well be a result of economic growth or vice versa.

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    • Figure 1. GDP per capita in the Scandinavian countries in 2002, US$
    • Figure 2. Norwegian business cycles, measured as output gaps, 1830–1960
    • Figure 3. Central government sector income and spending in percent of GDP, 1840–1960
    • Figure 4. HP-trend of central government sector income and spending in percent of GDP, 1840–1960
    • Figure 5. Central government spending by composition as share of total in percent, 1825–1950
    • Figure 6. Central government spending by composition as share of total in percent, 1825–1950
    • Figure 7. Fiscal balance, central government, percent of income, 1840–1960
    • Table 1. Central government policy regimes according to literature and according to quantification of sector
    • Table 2. Liberal laws concerning the economy introduced in the 19th century