Cost Disease versus Leviathan Explanations of Rising Government Cost: An Empirical Investigation

J. Stephen Ferris and Edwin G West

Public Choice, 1999, vol. 98, issue 3-4, 307-16

Abstract: In this paper, the authors reexamine the apparently conflicting empirics of Borcherding et al. (1977) versus those of Barry and Lowery (1984). The latter, designed to test the cost disease versus bureau voting power hypotheses on U.S. Citibase annual data between 1947 to 1979, was retested for the longer period available through 1989. Second, and more importantly, they isolate and test for the presence of a second channel for the exercise of bureaucratic power. That channel is the bureau's ability to use its information advantage to capture a portion of newly generated government rents through higher personal benefits (such as higher salaries). Such an analysis (following West, 1991) requires first that those factors generating new rents for government actually result in successful bureaucratic rent-seeking in the form of higher compensation levels. In addition, the analysis requires that these 'artificial' increases in bureaucratic wages show up as significant determinants of the higher cost of providing government services. Incorporating a constructed Kau/Rubin variable into the Barry and Lowery database is then shown to improve the predictive power of both the cost disease and bureaucratic power hypotheses for U.S. annual data between 1948 and 1989. Copyright 1999 by Kluwer Academic Publishers

Date: 1999
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