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Convergence in Government Spending: Theory and Cross‐Country Evidence

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  • Mark Skidmore
  • Hideki Toya
  • David Merriman

Abstract

Under reasonable assumptions about production technologies, international competition for factors of production will lead to convergence of per capita output. Is there an analogous process that leads to convergence of public sector activity? We provide a simple model that predicts convergence in government spending under certain assumptions. We show that Barro's (1990) model of endogenous growth with government spending provides one justification for the necessary assumptions and therefore supports the convergence hypothesis. We also discuss the possibility that increasing globalization has led to convergence in government spending. Our cross‐country empirical investigation provides compelling evidence of convergence in per capita government consumption spending, per capita government capital spending, and per capita government education spending. These findings provide a new framework for explaining the underlying dynamic forces that determine growth of government. Der internationale Wettbewerb der Produktionsfaktoren wird, unter Voraussetzung der üblichen Produktionstechnologien, zur Konvergenz der Pro‐Kopf‐Produktion führen. Gibt es einen ähnlichen Prozess, der zur Konvergenz im öffentlichen Sektor führt? Dieser Aufsatz stellt ein einfaches Modell vor, das unter bestimmten Voraussetzungen die Konvergenz der Regierungsausgaben voraussagt. Es wird gezeigt, dass Barros (1990) Modell des endogenen Wachstums durch Regierungsausgaben eine Rechtfertigung für die notwendigen Annahmen liefert und daher die Konvergenzhypothese stützt. Ebenso wird die Möglichkeit diskutiert, dass die zunehmende Globalisierung zur Konvergenz in den Regierungsausgaben geführt hat. Unsere empirische Querschnittsstudie weist Konvergenz der öffentlichen Pro‐Kopf‐Ausgaben für Verbrauch, Investitionen sowie Bildung und Forschung nach. Diese Ergebnisse schaffen einen neuen Rahmen zur Erklärung der dynamischen Kräften, die dem Wachstum der Regierungstätigkeit zu Grunde liegen. Les technologies de production permettent de supposer raisonnablement que la compétition internationale entre facteurs de production aboutira à une convergence de la production par habitant. Y a‐t‐il un processus analogue qui va mener à une convergence de l'activité du secteur public? Nous fournissons un modèle simple qui prévoit une convergence des dépenses publiques sous certaines conditions. Nous démontrons que le modèle de Barro (1990) prédisant une croissance endogène provoquée par les dépenses publiques justifie les assomptions nécessaires et renforce ainsi l'hypothèse de convergence. Nous discutons aussi la possibilité que la globalisation croissante ait conduit à une convergence des dépenses publiques. Notre enquête empirique transversale produit une évidence irréfutable de convergence des dépenses publiques par habitant pour la consommation, le capital et l'éducation. Ces résultats fournissent un cadre nouveau pour expliquer les forces dynamiques qui déterminent la croissance des dépenses publiques.

Suggested Citation

  • Mark Skidmore & Hideki Toya & David Merriman, 2004. "Convergence in Government Spending: Theory and Cross‐Country Evidence," Kyklos, Wiley Blackwell, vol. 57(4), pages 587-620, November.
  • Handle: RePEc:bla:kyklos:v:57:y:2004:i:4:p:587-620
    DOI: 10.1111/j.0023-5962.2004.00270.x
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    File URL: https://doi.org/10.1111/j.0023-5962.2004.00270.x
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    References listed on IDEAS

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    1. Amrita Dhillon & Myrna Wooders & Ben Zissimos, 2007. "Tax Competition Reconsidered," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(3), pages 391-423, June.
    2. Peralta, Susana & van Ypersele, Tanguy, 2006. "Coordination of capital taxation among asymmetric countries," Regional Science and Urban Economics, Elsevier, vol. 36(6), pages 708-726, November.
    3. Christoph Sauer & Margit Schratzenstaller, 2002. "Strategies Of International Fiscal Competition For Foreign Direct Investment In A Model With Impure Public Inputs," Departmental Discussion Papers 115, University of Goettingen, Department of Economics.
    4. Neumann, Rebecca & Holman, Jill & Alm, James, 2009. "Globalization and tax policy," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 193-211, August.
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    Cited by:

    1. Tatomir Cristina Flavia & Alexe Ileana, 2012. "Fiscal Discipline And Convergence Of The Euro Area Candidates. Closer To The Performers Or To The Laggards?," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 163-168, July.
    2. Saeid Mahdavi & Joakim Westerlund, 2017. "Are state–local government expenditures converging? New evidence based on sequential unit root tests," Empirical Economics, Springer, vol. 53(2), pages 373-403, September.
    3. Pui Sun Tam, 2018. "Economic Transition and Growth Dynamics in Asia: Harmony or Discord?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 60(3), pages 361-387, September.
    4. Bruno, Giuseppe & De Bonis, Riccardo & Silvestrini, Andrea, 2012. "Do financial systems converge? New evidence from financial assets in OECD countries," Journal of Comparative Economics, Elsevier, vol. 40(1), pages 141-155.
    5. Lena Maleševic Perovic & Silvia Golem & Maja Mihaljevic Kosor, 2016. "Convergence in Government Spending Components in EU15: A Spatial Econometric Perspective," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 18(42), pages 240-240, May.
    6. repec:bil:bilpap:0501 is not listed on IDEAS
    7. Fabrice Murtin & Martina Viarengo, 2007. "The convergence process of compulsory schooling in Western Europe: 1950-2000," Working Papers halshs-00588053, HAL.
    8. Kocenda, Evzen & Kutan, Ali M. & Yigit, Taner M., 2006. "Pilgrims to the Eurozone: How far, how fast?," Economic Systems, Elsevier, vol. 30(4), pages 311-327, December.
    9. Fabrice Murtin & Martina Viarengo, 2011. "The Expansion and Convergence of Compulsory Schooling in Western Europe, 1950–2000," Economica, London School of Economics and Political Science, vol. 78(311), pages 501-522, July.
    10. Sandhya Garg, 2015. "Spatial convergence in public expenditure across Indian states: Implication of federal transfers," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2015-028, Indira Gandhi Institute of Development Research, Mumbai, India.
    11. Ageliki Anagnostou & Dimitris Kallioras & Christos Kollias, 2016. "Governance Convergence Among the EU28?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 129(1), pages 133-146, October.
    12. Deller, Steven & Skidmore, Mark, 2005. "Convergence in Local Government Spending: Evidence from Wisconsin," Staff Paper Series 483, University of Wisconsin, Agricultural and Applied Economics.
    13. Murtin, Fabrice & Viarengo, Martina, 2008. "The convergence of compulsory schooling in Western Europe: 1950-2000," LSE Research Online Documents on Economics 23311, London School of Economics and Political Science, LSE Library.
    14. Jac C. Heckelman & Andrew T. Young, 2014. "How Global is Globalization?," Working Papers 14-08, Department of Economics, West Virginia University.

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