The Permanent Effect of Domestic Income on the Growth of Governments

Gabriella Legrenzi ()

No KERP 2006/19, Keele Economics Research Papers from Centre for Economic Research, Keele University

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.

Keywords: Wagner's law; cointegration; general government expenditure; local expenditure; persistence profile (search for similar items in EconPapers)
JEL-codes: C32 C51 H50 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2006-09
New Economics Papers: this item is included in nep-pbe
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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