We analyze the displacement effect within a multivariate revenue-expenditure model of government growth, based on a long historical dataset, for Italy. Our long-run analysis shows a permanent influence of domestic product on the growth of governments, supporting Wagner's law. The short-run dynamics are more complex and provide some evidence for the displacement effect, in terms of a lower resistance against tax-financing of government spending in the post-war. In addition, government spending adjusts faster when deviations from its equilibrium get larger.
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Article provided by Springer in its journal Public Choice.
Volume (Year): 120 (2004) Issue (Month): 1_2 (07) Pages: 191-204 Download reference. The following formats are available: HTML
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