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A logistic growth theory of public expenditures: A study of five countries over 100 years

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  • Massimo Florio

    ()

  • Sara Colautti

Abstract

This paper offers a new theory and empirical testing of long-term trends of public expenditures for five countries. While Wagner’s Law would imply an exponential growth process of the ratio between public expenditures and national income (G/Y), the law should be rejected both on theoretical and empirical grounds, because it disregards the role of ever increasing distortionary taxation. However, under some conditions, the combination of Wagner’s Law and the Pigou’s conjecture that the excess burden of taxation constrains the growth of public expenditures can be captured by a non-linear first order differential equation. The equation is the Verhulst’s logistic, originally invented to model Malthusian predictions on population growth. The integration of a Verhulst equation generates an S-shaped curve. This analytical framework combines intuitions from a welfare economics and a public choice perspective, and potentially offers a new research strategy on the dynamics of government expenditures. We offer preliminary econometric estimates on long run trends (around 1870–1990) of G/Y in U.S., U.K., France, Germany, Italy. These estimates confirm a pattern of similar trajectories, in spite of different national parameters, and suggest that the logistic view of growth of government is consistent with observed data. Copyright Springer Science + Business Media, Inc. 2005

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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 122 (2005)
Issue (Month): 3 (March)
Pages: 355-393

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Handle: RePEc:kap:pubcho:v:122:y:2005:i:3:p:355-393

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Web page: http://www.springerlink.com/link.asp?id=100332

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  1. Feldstein, Martin, 1997. "How Big Should Government Be?," National Tax Journal, National Tax Association, vol. 50(2), pages 197-213, June.
  2. Folster, Stefan & Henrekson, Magnus, 2001. "Growth effects of government expenditure and taxation in rich countries," European Economic Review, Elsevier, vol. 45(8), pages 1501-1520, August.
  3. Henrekson, Magnus, 1993. "Wagner's Law--A Spurious Relationship?," Public Finance = Finances publiques, , vol. 48(3), pages 406-15.
  4. Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753.
  5. Tridimas, George, 2001. " The Economics and Politics of the Structure of Public Expenditure," Public Choice, Springer, vol. 106(3-4), pages 299-316, March.
  6. Oliver, F R, 1969. "Another Generalisation of the Logistic Growth Function," Econometrica, Econometric Society, vol. 37(1), pages 144-47, January.
  7. Feldstein, Martin, 1997. "How Big Should Government Be?," Scholarly Articles 3043427, Harvard University Department of Economics.
  8. Alan T. Peacock & Jack Wiseman, 1961. "The Growth of Public Expenditure in the United Kingdom," NBER Books, National Bureau of Economic Research, Inc, number peac61-1, October.
  9. Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
  10. Yew-Kwang Ng, 2000. "The Optimal Size of Public Spending and the Distortionary Cost of Taxation," Development Research Unit Working Paper Series archive-19, Monash University, Department of Economics.
  11. Baumol, William J & Blackman, Sue Anne Batey & Wolff, Edward N, 1985. "Unbalanced Growth Revisited: Asymptotic Stagnancy and New Evidence," American Economic Review, American Economic Association, vol. 75(4), pages 806-17, September.
  12. James M. Buchanan & Richard A. Musgrave, 1999. "Public Finance and Public Choice: Two Contrasting Visions of the State," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262024624, December.
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Cited by:
  1. François Facchini & Mickaël Melki, 2011. "Optimal government size and economic growth in France (1871-2008) : An explanation by the State and market failures," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00654363, HAL.
  2. Hans Lind & Roland Granqvist, 2010. "A Note on the Concept of Excess Burden," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 40(1), pages 78-88, March.
  3. Gerrit B. Koester & Christoph Priesmeier, 2013. "Does Wagner´s Law Ruin the Sustainability of German Public Finances?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 69(3), pages 256-288, September.
  4. Bucci, Alberto & Florio, Massimo & La Torre, Davide, 2012. "Government spending and growth in second-best economies," Economic Modelling, Elsevier, vol. 29(3), pages 654-663.
  5. François Facchini & Mickaël Melki, 2013. "Political Ideology and Economic Growth: Evidence from the French Democracy," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00917617, HAL.
  6. Magazzino, Cosimo, 2010. "Wagner's law and augmented Wagner's law in EU-27. A time-series analysis on stationarity, cointegration and causality," MPRA Paper 26668, University Library of Munich, Germany.
  7. Facchini, François & Melki, Mickaël, 2013. "Efficient government size: France in the 20th century," European Journal of Political Economy, Elsevier, vol. 31(C), pages 1-14.
  8. repec:hal:journl:halshs-00654363 is not listed on IDEAS
  9. Dimitrios Sideris, 2007. "Wagner's Law in 19th Century Greece: A Cointegration and Causality Analysis," Working Papers 64, Bank of Greece.

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