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The Permanent Effect of Domestic Income on the Growth of Governments

Author

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  • Gabriella Legrenzi

    (Keele University, Centre for Economic Research and School of Economic and Management Studies)

Abstract

We empirically model the growth of the Italian government on a long historical dataset, starting from the country's unification. Our findings point to the existence of a long-run equilibrium relationship between gross domestic product and government spending, that is robust to different specifications of the government growth equation and to different levels of government. The estimated income elasticities of government spending present a clear pattern of growth and decline, suggesting the existence of possible cycles in the growth of government. The estimated speed of adjustment of government spending is rather slow, especially in the case of local expenditure, pointing to administrative rigidities.

Suggested Citation

  • Gabriella Legrenzi, 2006. "The Permanent Effect of Domestic Income on the Growth of Governments," Keele Economics Research Papers KERP 2006/19, Centre for Economic Research, Keele University.
    • Handle: RePEc:kee:kerpuk:2006/19
    Note: I would like to thank for useful suggestions and remarks the participants at the International Conference on Policy Modelling for European and Global Issues, taking place in Brussels, and the New Economic Windows conference, taking place at the University of Salerno. Any remaining errors are mine.
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    File URL: http://www.keele.ac.uk/depts/ec/wpapers/kerp0619.pdf
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    More about this item

    Keywords

    Wagner's law; cointegration; general government expenditure; local expenditure; persistence profile;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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