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New Evidence on the Historical Growth of Government in Europe: The Role of Labor Costs

Mickael Melki () and Andrew Pickering ()

Discussion Papers from Department of Economics, University of York

Abstract: We document a robust positive correlation between the size of government and the labor share of income in data from European countries covering the period 1869-1975. Following Facchini et al (2017), we interpret this correlation as evidence that labor costs drive public spending. The long-term increase in the labor share observed over this period explains half of the overall growth of central government. The relationship holds when the labor share is instrumented with movements in technological change at the frontier. When decomposing public spending, transfers, not intensive in labor, are the only component not associated with the labor share.

Keywords: Labor share; Public Spending; 20th Century Europe. (search for similar items in EconPapers)
JEL-codes: N4 J3 E25 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-his, nep-lma and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:yor:yorken:19/07

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