Crises and Government: Some Empirical Evidence

We examine a panel of 70 countries during 1966-2010 and utilize Reinhart and Rogoff crisis dates to estimate the effects of crises on the size and scope of government over both 5-year and 10-year horizons. We also estimate cross section regressions using 40-year (1970-2010) changes in government variables. Banking crises appear to be associated with decreases in the size and scope of government, while sovereign external debt crises are associated with increases. Otherwise, the size and scope of government appears to be persistent to the extent that even crisis episodes fail to leave a significant mark upon them. A notable exception may be that, over 40-year periods, countries that spend more years in crisis are associated with weaker legal systems and property rights.