Growth of govt

Growth of govt

differentiate between growth in govt expenditure vs. growth in govt's share in overall economy
Increased govt expenditure since 1950's; growth stabilised since 1990's
Macro theories
1. Wagner
  1. stages-of-development approach
    1. govt grows as economy moves from traditional to industrial
      1. first stages
        capital investment in esp. infrastructure
        put legal & administrative institutions in place to decrease transaction costs
        e.g. property rights
      2. middle stages
        capital investment still high
        correct market failure that arises from increased econ activity
      3. last stage
        capital expenditure by govt as proportion of GDP decreases
        Increased expenditure on education, healthcare, welfare security, social services
        from here, govt share in economy decreases continuously
2. Peacock & Wiseman
  1. displacement effect
    1. size of govt largely determined by political events, e.g. wars, elections
    2. political events that require large expenditure increase the size of govt
      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. Meltzer-Richard hypothesis
  1. general equilibrium model: govt size as function of majority voting
  2. NB of median voter in determining size of govt
    1. "decisive voter"
  3. extention of franchise most NB determinant of share of govt in economy
    1. pressure on govt comes from where income of median voter lies in relation to average income
      1. if below = pressure on govt to redistribute income
  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
Micro theories
1. Baumol
  1. unbalanced productivity growth
    1. progressive vs non-progressive sectors
      1. progressive large technology absorption capacity
        increase in labour productivity as new technology is adopted
      2. non-progressive reliant on labour, e.g. medicine
        ceiling on labour productivity increases due to new technology
    2. public sector wages must remain competitive with private sector
      1. increased wages in public sector due to increased labour productivity in private sector
2. Brown & Jackson
  1. service enviro explanation
    1. explain demand and supply for public goods and services
      1. demand a function of
        income of median voter
        preferences of median voter
        tax on median voter
      2. supply a function of
        costs of production
3. Role of politicians, bureaucrats & other interest groups
  1. govt size determined by
    1. vote-maximising politicians
    2. budget-maximising bureaucrats
      1. increase influence & power
    3. lobbying of specific interest groups
      1. e.g. farmers & subsidies

Next up

Description

Resource summary

Similar

	Created by Heleen Hofmeyr over 9 years ago