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

  • Massimo Florio

    ()

  • Sara Colautti

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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File URL: http://hdl.handle.net/10.1007/s11127-005-3900-y
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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
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100332

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  1. Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc.
  2. 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, June.
  3. Yew-Kwang Ng, 2000. "The Optimal Size of Public Spending and the Distortionary Cost of Taxation," Monash Economics Working Papers archive-19, Monash University, Department of Economics.
  4. Feldstein, Martin, 1997. "How Big Should Government Be?," National Tax Journal, National Tax Association, vol. 50(2), pages 197-213, June.
  5. repec:cup:cbooks:9780521894753 is not listed on IDEAS
  6. Henrekson, Magnus, 1993. "Wagner's Law--A Spurious Relationship?," Public Finance = Finances publiques, , vol. 48(3), pages 406-15.
  7. Oliver, F R, 1969. "Another Generalisation of the Logistic Growth Function," Econometrica, Econometric Society, vol. 37(1), pages 144-47, January.
  8. 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.
  9. Fölster, Stefan & Henrekson, Magnus, 2000. "Growth Effects of Government Expenditure and Taxation in Rich Countries," SSE/EFI Working Paper Series in Economics and Finance 391, Stockholm School of Economics.
  10. 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, 07.
  11. Feldstein, Martin, 1997. "How Big Should Government Be?," Scholarly Articles 3043427, Harvard University Department of Economics.
  12. Tridimas, George, 2001. " The Economics and Politics of the Structure of Public Expenditure," Public Choice, Springer, vol. 106(3-4), pages 299-316, March.
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