Growth of govt

 Heleen Hofmeyr
Mind Map by Heleen Hofmeyr, updated more than 1 year ago
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Mindmap for the learning outcome: "discuss the different theories of the growth of government"

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Growth of govt
1 differentiate between growth in govt expenditure vs. growth in govt's share in overall economy
2 Increased govt expenditure since 1950's; growth stabilised since 1990's
3 Macro theories
3.1 Wagner
3.1.1 stages-of-development approach
3.1.1.1 govt grows as economy moves from traditional to industrial
3.1.1.1.1 first stages
3.1.1.1.1.1 capital investment in esp. infrastructure
3.1.1.1.1.2 put legal & administrative institutions in place to decrease transaction costs
3.1.1.1.1.2.1 e.g. property rights
3.1.1.1.2 middle stages
3.1.1.1.2.1 capital investment still high
3.1.1.1.2.2 correct market failure that arises from increased econ activity
3.1.1.1.3 last stage
3.1.1.1.3.1 capital expenditure by govt as proportion of GDP decreases
3.1.1.1.3.2 Increased expenditure on education, healthcare, welfare security, social services
3.1.1.1.3.3 from here, govt share in economy decreases continuously
3.2 Peacock & Wiseman
3.2.1 displacement effect
3.2.1.1 size of govt largely determined by political events, e.g. wars, elections
3.2.1.2 political events that require large expenditure increase the size of govt
3.2.1.2.1 creation of interest groups/ getting used to high expenditure and tax means govt doesn't shrink to original size after the political event
3.3 Meltzer-Richard hypothesis
3.3.1 general equilibrium model: govt size as function of majority voting
3.3.2 NB of median voter in determining size of govt
3.3.2.1 "decisive voter"
3.3.3 extention of franchise most NB determinant of share of govt in economy
3.3.3.1 pressure on govt comes from where income of median voter lies in relation to average income
3.3.3.1.1 if below = pressure on govt to redistribute income
3.3.4 only works if you assume voters are aware of disincentive effects of high taxes and redistribution, i.e. median voter will choose tax rate that maximises her utility SUBJECT TO the impact the rate will have on the behaviour of other econ actors
4 Micro theories
4.1 Baumol
4.1.1 unbalanced productivity growth
4.1.1.1 progressive vs non-progressive sectors
4.1.1.1.1 progressive large technology absorption capacity
4.1.1.1.1.1 increase in labour productivity as new technology is adopted
4.1.1.1.2 non-progressive reliant on labour, e.g. medicine
4.1.1.1.2.1 ceiling on labour productivity increases due to new technology
4.1.1.2 public sector wages must remain competitive with private sector
4.1.1.2.1 increased wages in public sector due to increased labour productivity in private sector
4.2 Brown & Jackson
4.2.1 service enviro explanation
4.2.1.1 explain demand and supply for public goods and services
4.2.1.1.1 demand a function of
4.2.1.1.1.1 income of median voter
4.2.1.1.1.2 preferences of median voter
4.2.1.1.1.3 tax on median voter
4.2.1.1.2 supply a function of
4.2.1.1.2.1 costs of production
4.3 Role of politicians, bureaucrats & other interest groups
4.3.1 govt size determined by
4.3.1.1 vote-maximising politicians
4.3.1.2 budget-maximising bureaucrats
4.3.1.2.1 increase influence & power
4.3.1.3 lobbying of specific interest groups
4.3.1.3.1 e.g. farmers & subsidies
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