Some Second Thoughts on Wagner's Law

Barbara Dluhosch () and Klaus Zimmermann
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Barbara Dluhosch: Helmut Schmidt University, Hamburg, Postal: Department of Economics, Helmut Schmidt University - University of the Federal Armed Forces (FAF), Hamburg, Holstenhofweg 85, 22043 Hamburg, Germany

No 54/2006, Working Paper from Helmut Schmidt University, Hamburg

Abstract: We examine whether the Samuelsonian definition of public goods can be reconciled with "Wagner's Law", that is, public expenditures outpacing economic growth. While both predominantly focus on the demand-side, they differ with respect to their socio-political foundations. Taking the latter into account, and acknowledging that empirical studies are not generally supportive of individual income elasticities systematically differing between public and private goods, we find that Wagner's notion of the role of public-sector issues is even at odds with his own dictum. Implicit in Samuelson, by contrast, is the prediction that public spending decreases relative to GNP when income grows, provided that the income distribution remains constant. If this is not the case it can be shown that a growing inequality increases government's share et vice versa which can lead to counteractive forces on the GNP ratio.

Keywords: Wagner's Law; public expenditures; public goods; budget-to-GNP ratio (search for similar items in EconPapers)
JEL-codes: D11 H11 H41 H50 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2006-12
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Citations: View citations in EconPapers (2)

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