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The Permanent Effect of Domestic Income on the Growth of Governments

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Author Info
Gabriella Legrenzi () (Keele University, Centre for Economic Research and School of Economic and Management Studies)

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Abstract

We empirically model the growth of the Italian government on a long historical dataset, starting from the country's unification. Our findings point to the existence of a long-run equilibrium relationship between gross domestic product and government spending, that is robust to different specifications of the government growth equation and to different levels of government. The estimated income elasticities of government spending present a clear pattern of growth and decline, suggesting the existence of possible cycles in the growth of government. The estimated speed of adjustment of government spending is rather slow, especially in the case of local expenditure, pointing to administrative rigidities.

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Publisher Info
Paper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2006/19.

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Length: 30 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:kee:kerpuk:2006/19

Note: I would like to thank for useful suggestions and remarks the participants at the International Conference on Policy Modelling for European and Global Issues, taking place in Brussels, and the New Economic Windows conference, taking place at the University of Salerno. Any remaining errors are mine.
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Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom
Phone: +44 (0)1782 584581
Fax: +44 (0)1782 717577
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Web page: http://www.keele.ac.uk/depts/ec/cer/
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Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
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Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm

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Related research
Keywords: Wagner's law cointegration general government expenditure local expenditure persistence profile

Other versions of this item:

Find related papers by JEL classification:
H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Granger, C. W. J., 1980. "Testing for causality : A personal viewpoint," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 329-352, May. [Downloadable!] (restricted)
  2. John Bennett & Elisabetta Iossa & Gabriella Legrenzi, 2003. "The Role of Commercial Non-profit Organizations in the Provision of Public Services," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 335-347, Summer.
  3. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  4. Gabriella Legrenzi & Costas Milas, 2002. "The Role of Omitted Variables in Identifying a Long-run Equilibrium Relationship for the Italian Government Growth," International Tax and Public Finance, Springer, vol. 9(4), pages 435-449, August. [Downloadable!] (restricted)
  5. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October. [Downloadable!] (restricted)
  6. Peacock, Alan & Scott, Alex, 2000. " The Curious Attraction of Wagner's Law," Public Choice, Springer, vol. 102(1-2), pages 1-17, January. [Downloadable!] (restricted)
  7. Pesaran, M. Hashem & Shin, Yongcheol, 1996. "Cointegration and speed of convergence to equilibrium," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 117-143. [Downloadable!] (restricted)
    Other versions:
  8. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November. [Downloadable!] (restricted)
    Other versions:
  9. Gabriella Legrenzi, 2004. "The Displacement Effect in the Growth of Governments," Public Choice, Springer, vol. 120(1_2), pages 191-204, 07. [Downloadable!]
  10. Islam, Anisul M, 2001. "Wagner's Law Revisited: Cointegration and Exogeneity Tests for the USA," Applied Economics Letters, Taylor and Francis Journals, vol. 8(8), pages 509-15, August. [Downloadable!] (restricted)
  11. Gemmell, Norman, 1990. "Wagner's Law, Relative Prices and the Size of the Public Sector," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 58(4), pages 361-77, December.
  12. Thornton, John, 1999. "Cointegration, Causality and Wagner's Law in 19th Century Europe," Applied Economics Letters, Taylor and Francis Journals, vol. 6(7), pages 413-16, July. [Downloadable!] (restricted)
  13. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
  14. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September. [Downloadable!] (restricted)
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