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A distributional theory of government growth

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  • Holger Strulik

Abstract

This paper presents a closed form solution for time-consistent taxation and public spending in a dynamic game between government and median voter. Extending Meltzer and Richard’s static analysis of government size the paper offers a theory of growth of government. At low stages of economic development the median voter, identified as a relatively poor worker, prefers to have no or only small redistributive taxation in order to foster savings. Through this channel he expects improvements of his labor productivity and wage. At higher stages of development, however, when capital is relatively abundant and prospects of further labor productivity gains through capital accumulation are smaller, the incentive to tax and redistribute income rises. Yet, in line with previous work on growth and infrastructure spending the median voter prefers a constant share of productive public spending at all times. Hence, government growth is solely driven by an expanding welfare state.
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  • Holger Strulik, 2007. "A distributional theory of government growth," Public Choice, Springer, vol. 132(3), pages 305-318, September.
    • Handle: RePEc:kap:pubcho:v:132:y:2007:i:3:p:305-318
    DOI: 10.1007/s11127-007-9153-1
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    Cited by:

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    2. Andreas Georgiadis & Alan Manning, 2012. "Spend it like Beckham? Inequality and redistribution in the UK, 1983–2004," Public Choice, Springer, vol. 151(3), pages 537-563, June.
    3. Carlos Bethencourt & Lars Kunze, 2015. "The political economics of redistribution, inequality and tax avoidance," Public Choice, Springer, vol. 163(3), pages 267-287, June.
    4. Christian Bredemeier, 2014. "Imperfect information and the Meltzer-Richard hypothesis," Public Choice, Springer, vol. 159(3), pages 561-576, June.
    5. Holger Stichnoth, 2012. "Does immigration weaken natives’ support for the unemployed? Evidence from Germany," Public Choice, Springer, vol. 151(3), pages 631-654, June.

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    More about this item

    Keywords

    Redistribution; Government growth; Welfare state; Markov–perfect equilibrium;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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