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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. Funashima, Yoshito, 2015. "Wagner's law versus displacement effect," MPRA Paper 68390, University Library of Munich, Germany.
    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. Yoshito Funashima, 2017. "Wagner’s law versus displacement effect," Applied Economics, Taylor & Francis Journals, vol. 49(7), pages 619-634, February.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. Manuel Jaén-García, 2021. "Displacement Effect and Ratchet Effect: Testing of Two Alternative Hypotheses," SAGE Open, , vol. 11(1), pages 21582440211, March.
    9. 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.
    10. Ageli, Mohammed, 2013. "Econometric Testing of the Displacement Effect: the Saudi Experience," MPRA Paper 50565, University Library of Munich, Germany.

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