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The Displacement Effect in the Growth of Governments

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  • Gabriella Legrenzi

Abstract

We analyze the displacement effect within a multivariate revenue-expenditure model of government growth, based on a long historical dataset, for Italy. Our long-run analysis shows a permanent influence of domestic product on the growth of governments, supporting Wagner's law. The short-run dynamics are more complex and provide some evidence for the displacement effect, in terms of a lower resistance against tax-financing of government spending in the post-war. In addition, government spending adjusts faster when deviations from its equilibrium get larger.

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  • Gabriella Legrenzi, 2004. "The Displacement Effect in the Growth of Governments," Public Choice, Springer, vol. 120(1_2), pages 191-204, July.
    • Handle: RePEc:kap:pubcho:v:120:y:2004:i:1_2:p:191-204
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    Citations

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    Cited by:

    1. Yoshito Funashima, 2017. "Wagner’s law versus displacement effect," Applied Economics, Taylor & Francis Journals, vol. 49(7), pages 619-634, February.
    2. J. Ferris & Soo-Bin Park & Stanley Winer, 2008. "Studying the role of political competition in the evolution of government size over long horizons," Public Choice, Springer, vol. 137(1), pages 369-401, October.
    3. Christian Walter Martin & Nils D. Steiner, 2016. "Economic globalization and the change of electoral rules," Constitutional Political Economy, Springer, vol. 27(4), pages 355-376, December.
    4. Manuel Jaén-García, 2021. "Displacement Effect and Ratchet Effect: Testing of Two Alternative Hypotheses," SAGE Open, , vol. 11(1), pages 21582440211, March.
    5. Livio Di Matteo & Fraser Summerfield, 2018. "The Shifting Scully Curve: International Evidence from 1870 to 2013," Working Paper series 18-01, Rimini Centre for Economic Analysis.
    6. J. Stephen Ferris & Soo-Bin Park & Stanley L. Winer, 2005. "Political Competition and Convergence to Fundamentals: With Application to the Politcal Business Cycle and the Size of the Public Sector," Carleton Economic Papers 05-09, Carleton University, Department of Economics.
    7. Ageli, Mohammed, 2013. "Econometric Testing of the Displacement Effect: the Saudi Experience," MPRA Paper 50565, University Library of Munich, Germany.
    8. J Stephen Ferris & Soo-Bin Park & Stanley L. Winer, 2006. "Political Competition and Convergence to Fundamentals: With Application to the Political Business Cycle and the Size of Government," CESifo Working Paper Series 1646, CESifo.
    9. Funashima, Yoshito, 2015. "Wagner's law versus displacement effect," MPRA Paper 68390, University Library of Munich, Germany.
    10. Akitoby, Bernardin & Clements, Benedict & Gupta, Sanjeev & Inchauste, Gabriela, 2006. "Public spending, voracity, and Wagner's law in developing countries," European Journal of Political Economy, Elsevier, vol. 22(4), pages 908-924, December.

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