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Explaining Government Spending: a Cointegration Approach

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  • Abel Costa Fernandes

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    (Faculdade de Economia, Universidade do Porto)

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    Abstract

    Based on a comprehensive theoretical model we investigate the determinants of government spending. Besides GDP, commonly associated with either Walra´s law or Keynesian macro stabilization policies, we consider some variables identified with the public choice approach, namely median voters, pressure groups and the ideology of the government in power. These other variables are women, elderly population and population occupied in agriculture. The model is tested empirically using Johansen´s cointegration technique for the cases of Australia and Canada with data on general government expenditure, thus covering all government sectors, including social security. For the most part, we find long-run relationships among the variables and with the expected signs.

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    Bibliographic Info

    Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 311.

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    Length: 16 pages
    Date of creation: Feb 2009
    Date of revision:
    Handle: RePEc:por:fepwps:311

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    Keywords: Public Economics; Public Choice; Government spending; Interest groups;

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    1. Bird, Richard M, 1971. "Wagner's o Law' of Expanding State Activity," Public Finance = Finances publiques, , vol. 26(1), pages 1-26.
    2. Niskanen, William A, 1975. "Bureaucrats and Politicians," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 617-43, December.
    3. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
    4. Payne, James E & Ewing, Bradley T, 1996. "International Evidence on Wagner's Hypothesis: A Cointegration Analysis," Public Finance = Finances publiques, , vol. 51(2), pages 258-74.
    5. Nagarajan, P & Spears, A, 1990. "An Econometric Test of Wagner's Law for Mexico: A Re-examination," Public Finance = Finances publiques, , vol. 45(1), pages 165-68.
    6. Henrekson, Magnus, 1993. "Wagner's Law--A Spurious Relationship?," Public Finance = Finances publiques, , vol. 48(3), pages 406-15.
    7. Ana Paula Ribeiro, 2009. "Interactions between Labor Market Reforms and Monetary Policy under Slowly Changing Habits," FEP Working Papers 309, Universidade do Porto, Faculdade de Economia do Porto.
    8. Maria Manuel Pinho, 2008. "The political economy of public spending composition: evidence from a panel of OECD countries," FEP Working Papers 295, Universidade do Porto, Faculdade de Economia do Porto.
    9. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
    10. Cristina Santos & Alexandre Almeida & Aurora A.C. Teixeira, 2008. "Searching for clusters in tourism. A quantitative methodological proposal," FEP Working Papers 293, Universidade do Porto, Faculdade de Economia do Porto.
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