Human Capital Accumulation and Public Sector Growth

Vito Tanzi and Howell Zee

No 1995/095, IMF Working Papers from International Monetary Fund

Abstract: The present paper takes a fresh theoretical and empirical look into the relationship between Wagner’s law and economic development. It introduces human capital into a classic two-sector model of unbalanced growth. It shows that, as an economy develops, changes in the relative returns to human capital and unskilled labor, as a result of changes to their relative scarcities, could have a significant impact on the size of the government sector, depending in part also on the difference in relative factor intensities between outputs of the private and government sectors. This conjecture is broadly supported by empirical evidence based on a cross-section analysis of a large sample of developed and developing countries.

Keywords: WP; per capita income; government expenditure share; wage expenditure variant; unbalanced growth; government expenditure growth; government wage expenditure share; income grouping; Personal income; Human capital; Public sector; Productivity (search for similar items in EconPapers)
Pages: 14
Date: 1995-09-01
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