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The Size and Composition of Government Expenditure

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Author Info
Cameron A. Shelton () (Economics Department, Wesleyan University)
Abstract

This paper tests several leading hypotheses on determinants of government expenditure. The purpose is to avoid omitted variables bias by testing the prominent theories in a comprehensive specification, to identify persistent puzzles for the current set of theories, and to explore those puzzles in greater depth by looking at the composition of government expenditure and the level of government at which it takes place as well as its magnitude. Using Global Financial Statistics data from the IMF covering over 100 countries from 1970-2000, I look at cross-sectional and inter-temporal variation in government expenditure and both individual categories of expenditure (such as defense, education, health care) and different levels of government (central, state, and local). Among other results, I find a new explanation for Wagner's Law, widespread evidence that preference heterogeneity leads to decentralization rather than outright decreases in expenditures, that a great deal of the expenditure associated with increased trade openness is not in categories that explicitly insure for risk, and evidence that both political access and income inequality affect the extent of social insurance.

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Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2007-002.

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Length: 32 pages
Date of creation: Jan 2007
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Handle: RePEc:wes:weswpa:2007-002

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Keywords: government expenditure Wagner's Law

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Cited by:
(explanations, 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. Gilmar Teddy Zambrana Cruz, 2008. "The role of municipal councils in social expenditure: how does politics determine social expenditure," Working Papers - General Series 453, Institute of Social Studies. [Downloadable!]
  2. Serena Lamartina & Andrea Zaghini, 2008. "Increasing Public Expenditures: Wagner’s Law in OECD Countries," CFS Working Paper Series 2008/13, Center for Financial Studies. [Downloadable!]
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